You're taking things wildly out of context here, especially when you cite two year notes. I mean, in that context, I could say that NTAP is up 0.89 when NQ is down 41.05 right now as we speak!
There's a bigger picture here that you're missing completely, and which Martinghoul tried to make earlier (to no avail unfortunately because it's a great idea) when he mentioned IBM 3-yr paper: I might be short 2 year Notes just like you - but I'm also long 3 year cash or 5 yr futures or Dec 12 Eurodollars delta-neutral against that position. Even fixed income portfolio managers are constantly adjusting duration and convexity.
Fixed income is orders of magnitude larger than the equity markets, and the vast majority of the participants - including hedge funds and IB's, are trading relative value strategies. State Farm may be clipping coupons because by law they have to, but i promise you Citadel and G-S are spread trading up the wazoo - along with 90% of the big Chicago futures prop traders.
It is totally naive to think about fixed income one-dimensionally and in terms of yield. So, so, so much more to it than that.
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If you haven't figured it out from the rest of this thread, you're not going to figure it out now.
I've long since put my money where my mouth is. You can do the same (or in classic ET fashion, not) as you choose.
Whoa, pardner, no need to get all edgy on me. You don't want to discuss your trade or you're feeling defensive or whatever, that's your prerogative, but there's no need to accuse me of being stupid.
Moreover, as someone who trades this bond crap full-time for a living, I can tell you that "I put my money where my mouth is" is the sorta talk that will get you exactly nowhere. You should be able to clearly enunciate to yourself (at the very least) what specifically you like or dislike about a particular trade. That's a very important skill that good traders have and random punters don't. If you don't wanna do it, that's perfectly fine with me, but pls let's remain civil while we're doing this.
As to me walking the walk, I assure you I have done all sorts of "the same" in a variety of imaginative ways and in significant size. FYG, I am actually short quite a bit of short-dated duration, but through trades that offer much better risk/reward (IMHO). At any rate, time will tell, I suppose.
I actually meant to type 2's, not 5's. I think it's possible 5's will fall a little more, but I'm perfectly comfortable short 2's. I took my position Weds, and so far so good.
And if you don't understand that there's a price cap on bonds, you have no business pontificating in this thread. Sorry. That's bonds 101.
Can you tell me what the price cap will be on some of these bonds so that I know where to place my short? If yields are 1%, who is to say that yields can't go down to .5%, .25%, .00001%. How will the shorts feel then?
BTW, I'm not a bond expert or bond trader. I am fascinated with the current situation and of course, these trades appear to be taking on bubble proportions, and of course, we all know how bubbles end. It is just the "when" that really matters. Once this this thing starts to fall apart, who knows how many casualties will occur? This could make 2008 look like a nice Sunday picnic.
Whoa, pardner, no need to get all edgy on me. You don't want to discuss your trade or you're feeling defensive or whatever, that's your prerogative, but there's no need to accuse me of being stupid.
Moreover, as someone who trades this bond crap full-time for a living, I can tell you that "I put my money where my mouth is" is the sorta talk that will get you exactly nowhere. You should be able to clearly enunciate to yourself (at the very least) what specifically you like or dislike about a particular trade. That's a very important skill that good traders have and random punters don't. If you don't wanna do it, that's perfectly fine with me, but pls let's remain civil while we're doing this.
As to me walking the walk, I assure you I have done all sorts of "the same" in a variety of imaginative ways and in significant size. FYG, I am actually short quite a bit of short-dated duration, but through trades that offer much better risk/reward (IMHO). At any rate, time will tell, I suppose.
Look, it's pretty simple: the reason I'm short is that there's no buying from non-speculative sources. Bond funds are decreasing their exposure. That's selling. Pensions and insurance companies want no part of 0.5% - they're buying out the curve and foreign. The Fed's getting shit from all quarters over how big their balance sheet is. Foreign banks have indicated they want to cut exposure too.
Ask this: why is the spread between the Sep. and Dec. contact so small in the 2s? The answer seems clear to me: many of the shorts are non-speculative (bond funds) and intend to deliver against Sep contract to reduce their exposure. This is making it expensive for the longs to roll forward because the shorts don't want out. It all has to come to a head before expiration.
Now, equities get massacred by the Fed report, and bonds trade in the same range they've been in for a while.
Conclusion: going down and when it goes it will take the elevator, not the stairs.
Look, it's pretty simple: the reason I'm short is that there's no buying from non-speculative sources. Bond funds are decreasing their exposure. That's selling. Pensions and insurance companies want no part of 0.5% - they're buying out the curve and foreign. The Fed's getting shit from all quarters over how big their balance sheet is. Foreign banks have indicated they want to cut exposure too.
Ask this: why is the spread between the Sep. and Dec. contact so small in the 2s? The answer seems clear to me: many of the shorts are non-speculative (bond funds) and intend to deliver against Sep contract to reduce their exposure. This is making it expensive for the longs to roll forward because the shorts don't want out. It all has to come to a head before expiration.
Now, equities get massacred by the Fed report, and bonds trade in the same range they've been in for a while.
Conclusion: going down and when it goes it will take the elevator, not the stairs.
OKI, makes sense... I hope you don't mind if I make a couple of comments. All are my personal opinions, so pls take a pinch of salt.
1) Buying from non-spec sources:
a) I don't know if bond funds are reducing their exposure (and if you're concluding this on the basis of Bill Gross's comments, I wouldn't trust a single word he says).
b) I completely agree with you that there's a lot of buying happening further out on the curve recently.
c) Not so sure about foreign, as there aren't enough bond mkts that are big enough, unless you fancy buying JGBs at lower yields (which, by the way, the Chinese have been doing recently) or BTPS (Italian guvvies).
d) But the most important point is that any time you buy a long-dated bond, you're automatically buying some shorter-dated duration. So every time a pension fund or an insurer buys a 30y bond, all else being equal, the 2y bond on the same curve will rally.
2) Calls for the Fed to shrink its balance sheet have gone very silent recently, as the data keeps disappointing. It doesn't look like the Fed is going to listen to these people anyways, but we have to wait and see.
3) I have not seen any indication myself that foreign banks want to cut their exposure. If anything, all sorts of banks will be forced to buy bonds, incl treasuries, for the new liquidity regimes, e.g. Basel III (a specific case of what Reinhart and Rogoff refer to as "financial repression").
4) As to the value of the roll, pls trust me on this, at the moment it has nothing to do with positioning, esp real money positioning. It's mainly the function of the duration, first and foremost, and the relatively small difference in the coupons of the two CTDs.
So, in summary, your short is motivated almost solely by your view of how the mkt is positioned, rather than a fundamental view on the Fed or the future of the Western economies?
Big D, Martinghoul and others: Is it possible that the yield of the 2's get negative? I am asking because I just found out that I got filled on an order I did not cancel on the 2's that was at 109'225, and I want to double check whether the assumption of positive yield is something I should count on? If yes, I can take the risk of a 1% rise that would result from a zero yield.
