my totally wrong inflation call was hedged well by AUD/NZd long in portfolio. Tradeables are in deflation actually, and non-tradeables are 1/3 of average rather than the 2/3 i assumed. Such weak non-tradeables inflation should put RBNZ hikes in question. Looking to add to AUD/NZD after the RBA minutes.
closed -2 6B U7 @ 1.2978 , -1 G U7 @ 126.24 entering a quasi swap-spread with -4 bund @ 161.67, +22 ER Z0 @ 99.53
i got beta of yield on yield of 1 for the past 2 months on yield changes and r2 of 0.8, but in an extreme move probably a steepener. in any case asw and steepness seem correlated now. would you rather do it with schatz or bobl?
No, not suggesting anything wrong... Just that it ends up being a bit of a complicated beast as a result of all these factors.
I ran PCA on changes in ER futures (roll adjusted) and 2, 5, 10 Eusas today. I get very funny results. For 2000-2017 15th ER and EUSA10 have same sign of similar magnitude for both level and steepness but not curvature. For 2014-2017 for some bizarre reason 15th ER has different sign for steepness than both (!!) EUSA5 and EUSA10. The funniest is 2017 only where 15th euribor is 1.5x more sensitive to level than EUSA10 but 2nd factor is ER's versus EUSA, so looks like it's 3v6 basis messing with me. It's confusing.
You could use the swaps vs 3s to get rid of the basis malarkey... Might have to massage some data, if you want to include pre-crisis years.
with v3 i got results that make more sense but not complete sense: 15th ER and 5y EUSW5v3 have no exposure to slope but EUSW10V3 does, so it's indeed a steepener for zirp period (though 15th is a lil bit more responsive than eUSw10v3 to level). With 2017 only it's still bs with different signs for second factor for ER15 and EUSW5V3. Maybe cus of a small sample of 140 dates and diff observation hours for euswv3 and futures.
Ye, so I think there's def some dependency to regimes with these things... You could argue that the recent past represents a very different state of the mkt than what's coming.