well just when i had gained confidence following a month of reasonable p/l, contagion pollutes the scenarios to a potential risk level that i cant quantify.The reasons i stopped trading curve views return with avengence sadly.Whilst i believe that the emu crisis suits the political elite and their goal of political union ,and that the pressure currently exerted by the bond vigilantes will force fiscal discipline,and it all will be resolved with imf bail outs etc ,in the shorter term it seems to my little brain we again enter a phase where it is impossible to manage risk reward properly as a longer term yield curve fly condor and diff value trader on any meaningful position size.The curve becomes more random down to positions etc and black swan event risk is too high for my capital to absorb in summary this mornings decisions. stopped out on a trailing stop on balance of m bor short leaving overall small p closed front fly short at -1.5 here for a scratch basically less commissions u/z long cut for 2 tick loss i believe the optionality of a libor crisis is woefully mispriced and thus outright shorts in m have merit, but the speed of contagion to the other pigs following greece means that maybe the ecb will have to tread more carefully and the risk of less or no liquidity removal has increased at the repo maturities .Position adjustment will dominate across the strip again and i have no real idea what that means.It appears at moment that back month buying for yield will continue,thus flattening the curve.This goes against my fundamental view of steepening curves due to ongoing inflation and fiscal pressures.Market will to me remain illogical for longer than i remain solvent i suspect. my trading will have to be kept to small (risk adjusted) directional bets ig index binary options on indices seem a better trading vehicle again haha good trading
The problem with shorts based on the LIBOR blowout logic is that LIBOR is largely political. It's not a mkt rate any more, which means that it can be artificially suppressed, while the sovereigns topple.
see my earlier comments have been short from the previous bounce at slightly over 10 on longer term removal of liquidity and return to a more normal repo to interbank relationship view and short front fly had a little success and took 1/2 off around low 99.00 (m was lead month) stopped out this morning on trailing stop balance and closed fly for basically scratch. greece issues did not concern me as always expect imf or similar bail out so was happy being short BUT PRIOR DAY AND YESTERDAYS CONTAGION of the spped and magnitude of collapsing copper,mining and banking stocks santander was down over 10 percent at one point and follow through chaos this morning,now the bond vigilantes just going to knock over all sovereign miscreants pigs and eastern europe am concerned that risk reward and basis assumptions are going to be impossible to manage for a bit and thst ecb might have to rethink the proposed liquidity removal curve becomes confused position and risk reduction the name of the game still favour being short i agree maybe puts only way to hold on to it in present circumstances
one of those times discipline and a trailing stop are in hindsight a dumb move looks like front basis risk is being worried about and lending strike risk increasing all stirs have fronts down on day but overall big curve flattening tin hats on
I am actually very surprised that TED spreads are still falling off at this point it seems like dealers aboard are pricing us with a pretty high default risk if you compare our TED to say Germany's credit spread. Staying slightly long credit risk here and still making markets in the greens, blues, and golds while I see what happens next week.
It's not about the default risk in US... It's about the Club Med issues being a European problem, so the flight-to-quality that's been occurring is into Germany, rather than into USTs.
memiries do appear very short i agree equally i agree the current issue is very definitely a CLub Med however over time in may become a US sovereign risk issue too .USA structural issue is huge 10.6 % of gdp annual deficit overall public debt 70 odd percent of gdp by 2015 Maudlin already warns of a greek style issue if the agreed programme of deficit reduction is watered down for stirs still maintain the risk of another libor blow up is mispriced in eibor favoured a short in m over 10 to express that but will have to express it in options rather than outrights at present to buy time and finite calculable risk now the possibility of delay to ecb liquidity removal has increased as they worry about fragility and the contagion problem continueing The inevitable transfer back from public sector support and liquidity provision to private sector financing may not be so easy as seemed to be the case with yields still plus 1.50 in red strip,rally of backs and flattening might continue in short term market now driven by contagion and asset problems and re pricing of ecb timing at moment only trading method is quick plunge trades or stand aside for me spread book liquidated for an unpleasant friday asking myself if a return to longer term views was premature inter month relationships have very limited meaning in this environment again
so nowotny alludes to the possibilites that ecb might be changing the duration but not the amount of the maturing repos fronts up
big seller today h/m/u fly 10k plus with nowotny comments in ft and at a round table m might be in more favour as a long had success as reported over last month but got hurt thurs friday in the panic risk on the sovereign crisis and contagion bothers me