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So far Curve Advisor has created 189 blog entries.

Know Your Enemy

June 11th, 2017|Economy|

“Know Your Enemy” - Sun Tzu & Green Day On Friday, we got a 2bp flattening in EDH8-H0.  As mentioned in a previous CA, there is a tendency for the curve to flatten a few days going into the Fed meeting.  Note that I didn’t mention EDZ8-Z0, which was unchanged on Friday.  The price action felt differently on the Zs last week, and may last going into this Fed meeting.  Unlike prior weeks, the Z algo seems to be offering the Z contracts more often than not.  Whether this is just a lightening-up before the FOMC (before further buying) remains to [...]

Conditional Curve Shape

June 4th, 2017|Basics|

I think of value on the curve in two ways: (1) bottom-up, and (2) top-down.  Bottom-up would be looking at a small piece of the curve and thinking about the value there, whether it’s a particular Fed meeting, or slope or curvature on a segment of the curve.  This is probably the most common way to come up with a trade idea.  Top-down would be looking at the overall level of rates and asking what implications makes sense for the shape of the curve. On Friday, ten year yields made new “post-election” lows (starting a few days after the election [...]

ETF WTF

May 28th, 2017|Economy|

As I was watching equities make yet new highs last week despite lower stimulus prospects, increased Presidential turmoil, and weaker data (albeit still constructive), I thought about the ETF phenomenon.  I had mentioned ETFs casually in previous CAs as a source of equity support.  Consider all the 401(k)s, retirement funds, and personal investments that are tied up in passively managed funds.  A lot of that money is just automatically invested at regular intervals.  Workers generally only make allocation changes a “few” times a year.  Since the flow of funds into the ETFs are very regular, there are probably funds that [...]

Fed vs the Markets

May 21st, 2017|Economy|

Tens are back near the recent low yields, and Z8-Z0 spread is back near the recent lows.  This is a little surprising, but I suppose the bulls got an assist from Trumpidity.  All other things being equal (ex-Trump), I would have thought we sold off going into the Fed minutes, that may discuss tapering of the balance sheet.  Instead, with the announcement this weekend that Comey would testify after Memorial Day, the markets are going to be more focused on the headlines and less on the Fed. Let’s for a moment ignore Trump/Comey/Russia, take a step back and look at [...]

The Collapse of EDM7-FF Spread

May 14th, 2017|Positioning|

The big story on the curve last week was the collapse of the ED-FF spread.  I had been saying for a while now (as recently as the last CA) that EDM7-FF seemed strangely high to the rest of the ED-FF curve.  That finally capitulated last week, with EDM7 rallying 7.5bps, while FFN7 only rallied 1.5bps.  I updated the chart from the Trade Thoughts section last week to show the dramatic changes in the ED-FF spreads in the past week.  You can see that EDM7-FF declined 6.3bps on the week.  Now EDM7-FF looks a little too low on the curve, but [...]

ED-FF Spread

May 8th, 2017|Featured, Positioning|

[From time to time, I will post trade-related commentary from the web site.  The EDM7-FF spread collapsed the following week and this trade thought has resulted in one profitable trade and the second order effect of the ED-FF curve steepening has given us a an initial profit on a second trade.] One of the more interesting developments this year has been how the ED-FF spread has collapsed.  Take for example EDM7 vs FF.  It was over 35bps at one point this year, and it settled over 15bps lower on Friday.  I suppose considering we’ve had a yield-grab rally, it makes [...]

Timing of Pricing in Hikes

May 8th, 2017|FOMC|

I thought it was interesting that the June meeting was about 80% priced with over 5 weeks to go.  I think the Fed is hiking in June as much as the next guy.  But that’s a lot of time to go – we could get unfavorable news, or the data could turn south, or we could get some market instability, etc.  Since a number of the previous hikes were “well telegraphed”, I wanted to see when the markets priced in the “likely” hike. The chart on above shows the number of weekdays until the respective FOMC meetings (x axis) and [...]

Z8-Z0 Flattening

April 30th, 2017|Positioning|

I sent out an email a week or two ago that showed Z8-Z0 locally peaking a few days before the FOMC meeting, and sure enough, we flattened strong on Friday afternoon.  Part of it may have been month-end.  The question then becomes, do we take out the low at 42?  There has been a strong flattening bias heading into the FOMC meetings, and soon thereafter. However, given the current shape of the curve, I would argue that this could be like swimming upstream.  Now I’m not saying we couldn’t flatten much more.  As you can see from the above chart, [...]

A Caveman’s View of Frexit

April 23rd, 2017|Economy|

I am not going to pretend to be any type of French political expert.  But sometimes, not being so immersed can give you a different perspective.  I put on my CArock, the Unfrozen Caveman Curve Advisor, hat on to give you some non-standard takes: The market reaction should be interesting on Sunday.  I discuss a few trade thoughts in the next section.According to the betting markets, the following are the odds of the various Final Two pairings.[1] Yes – I realize the bookies have had a terrible 12 months with political odds.  But, just because something is 10 to 1 [...]

Potpourri II

April 16th, 2017|Economy|

I’ve been a bit punch-drunk for most of this year by all the headline bombs we have been a little behind the markets on.  There are a lot of things we have no competitive advantage trying to guess (since others in the markets have some insider information or just better leading information sources).  I wasn’t sure why the Fed was in such a rush to hike in March, when they are gradual and data-dependent and there was no pressing data.  I wasn’t sure why the Fed is in a rush to normalize the balance sheet by “later this year”, when [...]