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Old Aug 16th, 2010, 12:30 PM   #49
Maverick74
 
 
Join Date: Mar 2002
Posts: 19,097
Quote:
Quote from tradingjournals:

When you find a smooth-talking post like this one where is there expressions like "longs are making a killing", time has changed since the 80s, use and agreement with past information to project "authority" , and if the poster sells some sort of service, I would consider getting ready to leave the long side, and consider joining the opposite side.
I did not understand a word of this post. I'm going to have to get out the old gibberish translator again. LOL.
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Old Aug 16th, 2010, 12:32 PM   #50
tradingjournals
 
 
Join Date: May 2010
Posts: 4,499
Quote:
Quote from Maverick74:

I did not understand...
So retry.
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Old Aug 16th, 2010, 12:34 PM   #51
T-Bill Carson
 
 
Join Date: Aug 2010
Posts: 6
Quote:
Quote from TIKITRADER:

from his site

Front-Running the Fed in the Treasury Market
Antal E. Fekete
thanks. that's one of the good ones.
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Old Aug 16th, 2010, 12:35 PM   #52
The Big D
 
 
Join Date: Nov 2009
Posts: 487
Quote:
Quote from Maverick74:

This statement is a contradiction.
No it's not.

Let's say I buy 2's today, betting that the economy will go nowhere. So I keep them for a year, collect my 1/2% yield, and if rates stay unchanged that's my best scenario - I've made 1/2%.

The worse scenario is that the fed raises rates to say 3% over the next year, which is very plausible considering what the fed's moves were coming out of the last recession. As a result, the value of my bonds drops maybe 3% and after clipping my coupons I'm down maybe 2.5%.

In other words, I've got an interest rate risk that's 5x my best case scenario profit. That's pretty horrible. Obviously back of the envelope, but the point is that the risk in long bonds HUGELY outweighs the reward if you're right.
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Old Aug 16th, 2010, 12:37 PM   #53
Maverick74
 
 
Join Date: Mar 2002
Posts: 19,097
Quote:
Quote from The Big D:

No it's not.

Let's say I buy 2's today, betting that the economy will go nowhere. So I keep them for a year, collect my 1/2% yield, and if rates stay unchanged that's my best scenario - I've made 1/2%.

The worse scenario is that the fed raises rates to say 3% over the next year, which is very plausible considering what the fed's moves were coming out of the last recession. As a result, the value of my bonds drops maybe 3% and after clipping my coupons I'm down maybe 2.5%.

In other words, I've got an interest rate risk that's 5x my best case scenario profit. That's pretty horrible. Obviously back of the envelope, but the point is that the risk in long bonds HUGELY outweighs the reward if you're right.
No, you told Martin you would feel safer in CASH vs buying the 1% notes. That statement is a CONTRADICTION.
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Old Aug 16th, 2010, 12:41 PM   #54
The Big D
 
 
Join Date: Nov 2009
Posts: 487
Quote:
Quote from Maverick74:

No, you told Martin you would feel safer in CASH vs buying the 1% notes. That statement is a CONTRADICTION.
Uh, no it's not. In bonds I have interest rate risk. In cash, I have none. The only time it would be a contradiction is if I decided a priori to hold my bonds to maturity no matter what, at which point they will outperform cash but my liquidity goes down the shitter. With T-bills you could make an argument that might be a reasonable tradeoff. But not with the 2s and 5s.

In practice long bonds is currently a VERY risky trade.
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