Looking back I didn't really like this trade. It was not comfortable watching participants in a market bet on 50bp while I'm still counting on 0bp. And I'm sure now that I'm out of it, the fed will hold pat. Despite that, its occurred to me that there is an ideal game plan in this market to trade the ZQ. Here's my idea: 1) Don't trade spreads (just do the outright shorts or longs) unless you have 15 or more days left on the front month. The spreads are sort of an insurance when you have a liquidity crisis occurring. As the front month gets closer to expiry, there's little point in holding the front with exception to margin reduction. 2) Since we're obviously in a fed loosening climate, it pays to buy the front/back spreads anywhere near 0-10c (on the lower 12bp of a predicted hike), even if the market is feeling optimistic. Buying at 0-5c is practically risk free it seems. As witnessed this month, the mood changes quickly when foreclosure and housing reports come out. 3) Of course, the decision to buy vs sell the spreads is a key to make. But rate hikes anytime soon don't feel imminent, so buying them is probably safer.. they say don't fight a bull, and we're in a bull market for fed spreads.
Just turned CNBC on ... some mention of that Ip WSJ article moving the markets. Amazing --- FF players read the WSJ. Thats exactly when that selloff occurred. Good trade covering there guys.
So anyone still short the Nov07 futures? Who's got the balls? I'm playing this thru short CAD and straddling equities. short at 2.05. Can't stay away.
Dec FF futures last trade at 95.675 , implying that we're at 4.325 . Latest FF transactions seem to indicate they are keeping things reasonably in line. Anyone got an idea why we are trading around 4.325 instead of higher? I'm probably missing something here, but I'd like to know what I'm missing.
Mike, out of curiosity, this is you??? http://www.youtube.com/watch?v=LEGFABxJXIw Man, this a great peformance!!!!
Traded up to 95.70 today. I must be missing something? Assuming if you short here, even if there was an emergency rate slash, the upside is .20 BP and downside .05 BP . Anyone?
(rubibond: yes, thanks!) December 11th FOMC meeting. 6 days of fed funds at 95.5. 15 days of fed funds at 95.75 assuming there is a rate cut. Thats 95.678. Add an extra 2 or 3 ticks for days fed funds trade below target range (which seems to have been standard practice lately) and that takes you to your #. Yes.. not much risk here being short. Amazing ONCE AGAIN considering fed language on Friday how ridiculously overpriced fed funds are here. (anyone see Randall Kroszner saying don't expect cuts near term?) Its not as if crude collapsed since the last meeting. Furthermore, the acknowledgement last meeting of inflationary threats seems a clear signal that the fed may not be in such a hurry. Of course, I don't get the 10yr yield at 4.07% Don't you guys think that flies in the face of the dollar becoming worthless? Looks like eurusd back to 1.30, cadusd to .85, etc. Either that, or 10/30/etc yr bonds are the sell of the century. That has me speculating that the entire currency/bond move as of late is hedge fund driven, and is a combo trade of long treasuries + short USD. [thus a US asset neutral position levered to price speculation of USD]
Thanks for the explanation much appreciated. Think I might take a contract short tomorrow, depends if I have time to put it on. You doing anything here?
no no trade for me... i blew up the accounts this past few months (on other trades, not zq) , so i'm taking some time away from trading. (overlevered)
Scriabinop23, are you still watching these spreads? It looks like implied future FF rates are mispriced between the Dec and Jan contracts. A ratio spread, short 3 Dec for every long 2 Jan looks to be profitable under all plausible Dec 11 scenarios. Average effective rate so far this month is 4.46 but won't have Friday's number for a few hours yet.