Holding the CTD going into FOMC.... I almost rather be holding FVZ outright long - nevermind how rich they are; I think the Fed will be happy to let 10s30s stay steep to signal to the markets that inflation expectation has been ignited. At least the CTD won't catch the full fury that the CT30 will.
They do it all the time and not just in 30y. As I understand it, that's the way they replicate the negative convexity of a benchmark mtge portfolio. Yep, 10s30s is a special beest, that's for sure...
Gentlemen, I am awaiting a tsunami of sell orders after the FED´s announcement. I have bought deep OTM puts and deep OTM calls - "strangling" my expectations. Downside Treasuries 112.00 and below...I have seen once in my life a limit down in Treasuries. I think 8th or 9th of March 1996 ? GL+GT ASusilovic
It has already happened over the last couple of days since the Fed has now communicated, through the WSJ and some big boys, what they intend to do, incremental steps. I'm with Gross on this one, a subdued reaction. Good luck
The benchmark has a heavy % of MBS that are pretty negatively convex, which makes the benchmark itself negatively convex. If PIMCO is underweight in mtg and want to be benchmark neutral in terms of convexity, then they have to get it elsewhere.
That's a curve whose steepening is paved in blood.... twice; Remember how fast fast$ and desks got stopped out from 101 to 110 and then to 118.... I know real$ got pretty bruised on that trade too - but luckily (depending on how you see it) they don't get stopped out on a whip.
Yeah, I spilled some of that blood. But only in the second leg up, thank god. Stopped out at 118, 'cause it just felt wrong.
Good call! Take this shorts: <img src="http://farm2.static.flickr.com/1153/797211157_39ebf2e39f_o.gif" />