Long Bonds and Rate Spreads

Discussion in 'Financial Futures' started by Real Money, Oct 5, 2019.

  1. Real Money

    Real Money

    Looking to start a discussion, or maybe just get some tips from the experienced guys.

    Let's say I want to take a directional view on the back half of the curve.

    I am pretty sure that I can just buy the UB/ZB spread in a 1:1 ratio and that will give me a bullish exposure. This would also work with UB/TN or even UB/ZN.

    Rate Spreads.png

    My question is basically, what other spreads would be similar in nature. If I buy enough ZB and sell a little UB, AFAIK that would also work to accomplish this.

    So this is basically my question.

    What other kinds of spreads can you use to express a directional view on the back half of the curve?

    Or even, should I be using the exchange supported ICS spreads for this?

    Something like buying ZB/TN or ZB/ZN in a heavy front ratio would also do the same?

    Does NOB and BOB with the above ratios work for this, or would this be more of a curve play instead?

    How deep does this rabbit hole go? Recommend a book or something?

  2. gaussian


    Currently learning spreads myself. I'm mostly in ags though.

    I picked up The Complete Guide to Spread Trading and while it's alright, the terminology they use (for example they always subtract far from near which is unusual on most brokers) is strange sometimes.

    I've found just cracking open R, Python, or even Excel and plotting spreads is the most useful to me. Maybe this would also work for you.

    EDIT: I have about 10 years of data from Quandl, maybe I can look into this more as a learning exercise. Send me a PM sometime.
  3. Real Money

    Real Money

    Yea, that's what I'm doing right now: comparing the different spreads to the outright Ultra-T Bonds to check out how the different constructions are altering the volatility of the positions.

    Seems like you can do just about anything you want with these instruments like invert the directionality, or negate the trendiness.

    Like you said, I'm just trying to take a directional view here and so would rather not get too far into the weeds if I don't have to. I know how complicated and nuanced the rates complex can be and would rather not get lost in a forest of techniques and terminology etc.
  4. You might want to consider the NAB ie.
    2*/ZN-1*/ZB, especially nowadays ...
    Real Money likes this.
  5. Real Money

    Real Money

    Progress Report:

    ZN is approximately volatility and exposure equivalent to Ultra Bond futures in a 3:1 ratio. What's more, ZN requires only 27% of the initial margin and is highly liquid.

    However, it is more commission intensive on a dollar volatility adjusted basis.

    Thanks @Stamamarti !
  6. bd10


    @ Real Money

    Is 10y too short for you? Just thinking of 2's/10's or 5's/10's.
  7. Real Money

    Real Money

    Thanks guys.

    I just needed to find a viable cross-hedge for a Rate/Index spread. ZN will do the job, so now I just have to practice execution and get consistent with the results.