A guy told me over the weekend that he was trading the yield curve using futures, he was long the 2 year T-note futures and short the 10 year T-note futures at a 2 to 1 contract ratio. This puts him long $800k of 2’s and short $200k of 10’s. I asked what his thesis was and he told me that he really didn’t have one and was following recommendations from a friend. It looks to me that the friend is expecting a rise in the 2’s since the trade is heavy on that side. Can any of you explain what might be the reason to have this strategy? I mean if I was was wanting to trade the curve I don’t think I would bet that heavily against the fed on the 2’s.
looks like a steepener but CME tradeable ratio is 2:1 https://www.cmegroup.com/education/...spreads/trading-the-treasury-yield-curve.html https://www.cmegroup.com/trading/interest-rates/intercommodity-spread.html
Thanks for that. I was thinking that they were trading a 4:1 ratio because of the contract unit size being double on the 2’s. I still don’t understand the bond market very well.
Although the yield curve has continued to steepen momentum has been slowing appreciably for a month now. Election Day (tomorrow) obviously everything so maybe it gets resolved and resumes the prior trend, or maybe not.
the only advantage trading yield curve is margin requirements are very low but fundamentally it is about the interest rate expectations.
I’m still unclear about the 2:1 ratio mentioned above and on the CME website. Is it referring to number of contracts or the dollar value of the position? 2:1 contracts (2’s:10’s) would be 4:1 in dollars of bonds controlled.
number of contracts. you divide DV01 to get the ratio. looks like 2:1 is even too big. ratio is 1.89:1 https://www.cmegroup.com/trading/interest-rates/intercommodity-spread.html#2