I am in the club that cannot short the bonds and must play with the "futures". Btw, to the best of my knowledge IB does not provide physical delivery of EU Bonds, isn't it? It just provides physical delivery of assets that can stay in the account. As for considering the future as the underlining, I am not really feeling comfortable with that. For example if i am long with a bond and "something goes wrong" I can always keep it till the end. Is there any way to replicate this strategy with the futures? Can you do this with IB? P.S: i consider Italian bonds as a good proxy for spanish bonds but i am not comfortable with considering french bonds a proxy of germans
how about buying the spanish bond through a european brokerage and short the equivalent in German bund futures ? About the repo , a repo usually works that way, you borrow money against collateral , a bond for ex., what happens is you sell that bond , get cash, with an agreement to repurchase (when the loan comes to maturity) , you then repurchase the bond at a higher price reflecting the repo rate (of interest). It seems we are talking about a different kind of repo here , right ? Anyway like one poster indicated , a trade like that not only is complex to implement but involves a number of risks. What could actually happen is a widening of the spred , you would get screwed on both ends. If you really believe spanish bonds are value, then you could just buy them outright and hold to maturity if the spread widens.
Isn't this the whole point of the trade? To make a bet on the risk premium of span vs germany? When spanish bond spread tightens, you make money on the trade* By buying the spanish bond outright, you incur (interest rate) duration risk, which is correlated (in the direction that hurts you) with the risk spread. * Hedging cash bond with futures is fairly straightforward, but with enough kinks that makes it difficult for a retail guy to do right; Finally, repo is used to short cash german bond and long the spanish bond in a roughly funding neutral way.
Maybe it does, maybe it doesn't -- I don't know. I do know that if they deliver something to you which is larger than your margin reqs then they start giving you margin calls. Not that it's ever happened to me, but for example I always liquidate option positions on the day of or before expiration. Agreed with not feeling comfortable about something going wrong. The only way I can think of replicating this strategy is by rolling over every three months. Not exactly the most exciting prospect. Check out BTP, OAT, GBL. ForAPlus is right. The whole point of the trade is that I'm not that certain that Spanish bonds are going to get any more expensive -- but that German bonds will get cheaper with respect to Spanish ones. Also, collateral (i.e. margin) requirements are better for a pairs trade than going long outright.
Sure if you are dealing with the future or the option i do not see the point of the physical delivery unless you want to go for the buy and hold. i would like to know more about this... i initiate a new discussion at the following link: http://www.elitetrader.com/vb/showthread.php?s=&threadid=246407 I do not want to go out of topic here Thanks! If you want to deal with the spot price in IB you may also want to check out ITALY. I am not use to this bond and the fact that the base currency is in USD make me confused.
oh btw, a lateral point of this discussion was if IB was allowing physical delivery of futures bond. The answer is NO. Settlement Method: Physical Delivery Physical Delivery: not permitted at Interactive Brokers
Hello, I would like to know what brokers are good value , have X Trader (TT) platform ( ideally the free transactional pricing one ) and allow you to trade Eurobean Bond futures - Bund , FOAT ( French ) , BTP ( Italian ).............
AMP futures are happy to add these products to those that they offer . They also offer the transactional version of X Trader ( no fee ) and are the only company so far I have found to offer european bonds + free x trader (tt)
https://www.citibank.co.uk/personal/bonds.do offer retail bond trading. Probably have the same facility in every location they are.