Certainly I am expecting a steeper curve and higher 10y yields (hence keeping the ED U1-U2 position since last Feb), but for the moment the move in treasury yields up looks overdone. We are up more than 60 bps almost interrupted since early Sep and a large part of it doesn’t seem connected to fundamental news, esp the sell-off last week. Curious if today's bid was a reversal point.
- closed 1 brent h8 short @ 68.53 (2.4k loss) - reduce ED M9-M0-M1 from 30, -60, 30 to 15, -30, 15 @ 8 bps (opened at 0)
Most positions that I expected would benefit from steepening have actually failed to perform. UXY-WN steepener didn’t do well since year beginning and been at roughly the same level over the past few days. XT-UXY widener got crushed too after weak aussie CPI to zero spread from 20+ in year beginning. Gilt – bund widener gave up some gains today. BTP-bund widener narrowed YTD. In Eurodollars most steepening came in reds, so my U1-U2 widener hasn’t earned anything. The term structure is looking a bit peculiar with U1-U2 being 2 bps lower than what U0-U1 and U2-U3 suggest: U8-U9 42 bps, U9-U0 18 bps, U0-U1 9.5 bps, U1-U2 6 bps, U2-U3 8 bps. Alternatively U2-U3 is too high. Shorting U2 looks a cheap way to short the curve. Sharpe ratio YTD is high on an absolute level but with a minus sign. 1.3% down over a month with 4% annualized vol (still failed to increase positions to hit 7% vol target), that’s almost -4.
in this century equities sell-offs usually happened during US yields falling. Current sell-off seems bond related, so not consistent with the normal behavior and global econ accelerating. Vol is up, so lets sell puts. long uxy as previously explained current yield run up looks bit excessive.
covered 4 ES H8 put spread 2600 /2500 @ 10.25 this has been a horrible trade. the call was right (S&P rebound), but hardly any money made on the put spread and net loss given UXY falling 1.30 USD. Yet the trade drawdown was huge when ES was below 2600 and vol was up.
This is frustrating. I don’t feel I have moved an inch further to ‘finding opportunities’ in the markets. I suspect the very few ideas I had suffered from confirmation bias, where I cherrypicked arguments why the market should act this or that way. Cynically I would say I chose discretionary approach because unlike systematic I cannot disprove that my ideas have positive expectation. I am also struggling with time allocation. Reading news, taking notes central bank press-releases/minutes and collecting economic data is quite time-consuming and I am failing to make use of all that information. Writing summaries of market action for each day is helping to understand why something moved but is of no use to make predictions. If I cut back on news, central bank meetings, econ data and etc I could spend more time trying to build quant models but my previous attempts (mostly in FX space – momentum/mean reversion of various cross-asset residuals) haven’t been successful. I suppose I don’t know where to dig. My quantitative skills are also quite mediocre. I need to change something in my approach but I don’t know what it is. Worse yet is that while I enjoy the process, year by year I am losing optimism to ever find energy to leave my job and move to professional money management.
Do you think it would be beneficial to increase the time frame? Maybe to explain moves over multiple weeks/months?
I do zoom-out and check the developments over the quarter and more frequently over the year. Annotating a graph is probably the most intuitive presentation of what’s happened, though I usually do not do that. For example, over the quarter South African rand appreciation has largely been politics driven, while short sterling moves were largely synced with global developments.