Who knows the correct ratio...

Discussion in 'Financial Futures' started by Comanche, Mar 12, 2007.

  1. I am looking for the correct ratio to use to spread a 30 yr against a 2 year in bond futures. I like short term rates lower against long term higher as Chiina starts losing its appetite for US denominated assetts and they slow down the buying of our 10 yr.
     
  2. MTE

    MTE

    I don't know the ratio, but it can be calculated. You can find the details here.
     
  3. dhpar

    dhpar

    currently it is approximately 3x ZT (TUM7) for each 1x ZB (USM7)
     
  4. If you're doing small trades, the easiest thing to do is to look at the margin breaks the exchange gives you. The alternative is to find the CTD, compute the DV01, and then adjust frequently. CTD isn't easily available, unless you're paying for Bloomberg.

    If you're in the hundreds of contracts, you'll need to be more precise than the "3:1" (or whatever).

    Scroll down to the second to the last table:
    http://www.cbot.com/cbot/pub/page/0,3181,2144,00.html#Financial_Calendar_Spreads
     
  5. dhpar

    dhpar

    3:1 is currently precise enough - check the numbers before you damn them....
     
  6. Wake up on the wrong side of the bed? How can they be approximately precise enough?

    If you're buying the TU/ZB spread x1000, is 3:1 "precise enough"?

    I don't know, but the point is that if you're doing big trades, figure out the CTD & DV01 rather than a simple ratio. If you're doing small trades, 3:1 is "close enough".
     
  7. dhpar

    dhpar

    I do reasonably big trades (in many hundreds) and 3:1 is precise enough (error on 2nd dec place). If you know this business you're aware that at the end of the day you do not trade precise ratios anyway (for many second order reasons) - so 3:1 is more than "precise enough".
     
  8. The OP might also want to check out the ten year vs 30 year (2:1). Technically, the chart looks much stronger.
     
  9. dhpar

    dhpar

    10 to 30 is quite difficult to trade though - the fundamental drivers are much less clear...it is almost 100% technical.


    FA: do you use Bloomberg?
     
    #10     Mar 12, 2007