When all are going down the long bond has to screw up things and be stubborn. I have my luck shoved up my ass with a donkey dick. Many of you don't need luck but I do......
sell mortimer sell f*ck you bernanke! ha ha ha ha ha finally 6 months of pain over i hope! worse b to c since feb 10 just knowing this contract it will probably rally all the way back f%cking nuts!
Out at 126 18 lost about 1.8% Now do my meeting with the gamblers anonymous group. What a 15 days fiasco.
Interesting: "hese results suggest that dealers buy Treasuries during auction weeks when prices are depressed and then sell these securities sometime later after prices have recovered" "These auction purchases cause dealer positions to deviate from desired levels. While this creates pure inventory risk for dealers, adverse selection risk from trading with counterparties with superior information is small. This is because the Treasury Department commits itself to a âregular and predictableâ issuance schedule (Garbade (2007)), explicitly minimizing strategic behavior based on private information." "Dealers can hedge the risk of new inventory acquired at auction by selling Treasuries prior to the auction in the when-issued market, selling after the auction in the secondary market, or taking offsetting positions in other Treasury securities or derivatives markets." "To the extent that dealers have a perceived informational advantage over other market participants, they may take on or maintain interest rate exposure by initiating transactions or by opportunistically hedging positions acquired through market making. For example, a dealer that expects interest rates to fall in the near future might accumulate a long Treasury securities position. If interest rates do indeed fall, the dealer can sell the securities at a higher price. Given that there is no asymmetric information about Treasury security cash flows, the ability of market participants to forecast future price changes is probably limited. Nonetheless, it is possible that some market participants are better able to forecast future price changes because they have better information about discount rates. Such information might emanate from fundamentals, such as a superior ability to evaluate the state of the economy, or from technical considerations, such as knowledge of customer order flow or security ownership." "<b>5. Dealer use of futures for inventory management</b> In this section, we explore dealer use of futures for inventory management. In particular, we examine the relationship between dealer spot and futures positions by regressing changes in futures positions on changes in spot positions. One might expect that dealers use futures to hedge changes in spot positions, which would generate a negative relationship between changes in spot and futures positions. In fact, we do find that Treasury futures and spot positions tend to move in opposite directions, as shown in columns 2 and 5 of Table 5. The coefficient on bill spot positions is small and marginally significant and suggests that bill futures positions decrease (increase) by $14 million for every $1 billion increase (decrease) in bill spot positions. In contrast, the coefficient for coupon positions is both sizable in magnitude and highly significant. On average, coupon futures positions decrease (increase) by $219 million for every $1 billion increase (decrease) in coupon spot positions. In both cases, the hedge ratios are significantly less than one, suggesting that dealers retain a significant amount of risk despite their hedging activities." http://www.ny.frb.org/research/staff_reports/sr299.pdf Any comments and enlightenments are appreciated! Just trying to make sense of this without going to school. For example what is a "coupon spot position"? Is it that the dealers keep the treasuries and receive payment from the government every 6 months based on the coupon value?
No, not quite. Firstly, "coupon" refers to normal Treasuries (as opposed to T-bills, which are zeros). So when they say "coupon spot position" they mean UST positions traded for spot settlement, i.e. regular cash bond trades. This is juxtaposed against "fwd or futures coupon positions", i.e. where bonds are traded for settlement date in the future (that's what you're doing by trading all those CBOT futures).