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So far Curve Advisor has created 255 blog entries.

Legging Lessons

September 17th, 2017|Basics, Featured|

Since some of you may be new to ED trading, I may occasionally do a “Trade Basics” segment.  There was an interesting trade that went through on Friday, and I thought I would discuss it.  Almost 25K EDU7-EDV7 spreads traded.  This is a crazy amount to have traded, considering the open interest on EDV7 is only 103K contracts.  I’m assuming this is probably some kind of unwind.  There appears to be an equally unusually large volume on this spread trade on August 2, and since EDU7 rolls off Monday, it seems reasonable to conclude that this was an unwind of [...]

The Tapering Fed Meeting

September 17th, 2017|FOMC|

One of the things about the “gradual and communicative” Fed is that they pretty much tell us most of the important things we need to know well in advance.  No one said anything about a hike (even the hawks) so the odds of a hike at the September meeting is basically “zero.”  They have also communicated for the past two meetings that tapering is coming, so the odds of the Fed not announcing the taper at this next meeting is also basically “zero.”  I suppose there could be some question about when tapering would start.  My “pick a date out [...]

Short End Shenanigans

September 10th, 2017|Economy|

Since the macro rates picture has been hard to decipher, I think this is a good time to look at the micro.  There are a lot of interesting things going on in the very short end of the curve right now: I. An ease is more likely than a hike. As I mentioned earlier in the week, FFV7 and FFX7 are starting to price in an ease.  FFX7 should settle at 98.843 on a typical non-event month.  Not only did 98.845 trade, it went bid late Friday and some 98.85s traded.  That’s a little crazy, considering we’ve had no new [...]

The Long Term Treasury Rate and Fed Funds Target

September 3rd, 2017|Economy|

Last week, Kaplan suggested that his long term neutral FF rate was closer to 2.5% than 3%.  I’m going to assume that his dot is going to be at 2.625% later this month.  This got me to thinking about the relationship between the Fed’s mean long run Fed Funds rate projection from the SEP[1] and the 30 year Treasury rate.  The Fed actually sets the target Fed Funds Effective rate (“FFER”), and there is generally a tight relationship between the FFER and Treasury rates.  I know people who think of longer run Treasury rates as a strip of Fed Funds [...]

Cute Chart – QE “Caused” Rates to Rise

August 27th, 2017|Positioning|

A cute chart that has been going around is this idea that QE caused rates to INCREASE.  Therefore, tapering should cause rates to DECREASE.  <crickets>  As absurd as this sounded, I had to whip out the chart to take a look. Sure enough, after QE (and Operation Twist, denoted as “OT”), rates did increase soon thereafter.  But that would be an oversimplification.  To me, the main takeaway from the chart is that the markets are forward-looking and anticipatory – sometimes overly so. QE1 and the Taper Tantrum were two events that may have caught the markets off-guard. That is why [...]

Cute Fact – Years Ending in 7

August 27th, 2017|Economy|

There’s a cute statistic going around that in the second half of years ending in 7, the equity markets have had poor returns: 1987 (Black Monday), 1997 (Asian Crisis), and the 2007 (Financial Crisis).  Whaddaya know?  2017 also ends in a “7.”  And we just happen to be in the second half of the year. There are a few candidates for catalysts: any of several possible Trumpidity Crises, a North Korean Crisis, an auto subprime Crisis, the brick and mortar collapse crisis, the divided nation Crisis, the Gulf of Mexico Swallowed My Glasses Crisis… the list of possibilities are long.  [...]

Bad Marriage

August 20th, 2017|Economy|

The Republicans in Congress are in a strange situation with Trump.  It’s like being married to say an embarrassing drunk… you’re constantly afraid of the next stupid thing to come out of their mouth, you don’t want to be seen with them, and they make you look bad at work functions.  You want to get a divorce, but you have to stay with them for the kids.  Last week, I was very concerned that Trump was going to take any legislative stimulus and possibly the economy down with him, because he would become someone no one wanted anything to do [...]

Korean Tensions

August 13th, 2017|Economy|

As a Korean-American and someone who likes to think about game theory, I have some thoughts on the Korean situation.  We had the start of a crisis rally last week.  It’s always difficult to see how much panic is going to be priced into the market.  Putting my thoughts down on paper helps me organize my trade thoughts: There is “ZERO” chance that North Korea will launch a missile at the US (Guam) first. You may have noticed that I used three qualifiers.  The odds for something like a missile launch can never be truly zero.  So let’s call this [...]

Inconsistent Reflation?

August 6th, 2017|Economy|

It’s becoming clear that the markets want to price in some kind of libor widening ahead of the high-probability tapering coming in September.  This makes sense – as the Fed stops buying assets, you would expect that spreads should widen.  However, there are a few inconsistencies currently priced into the markets: Longer rates don’t seem to want to go higher. What happens if the Fed tapers and rates don’t rise?  Should we expect ED spreads to widen to FFs?  Right now, EDU7-H8 vs FF are the steepest they have been in a while.  Part of this is a high settle.  [...]

Bearish Market Developments?

July 30th, 2017|Positioning|

We are now in an environment where we have growth, but no inflation.  This is great for businesses and consumers.  This is not so great if you are a trader, as we could just sit around here, barring some catalyst.  But we get the big monthly data week next week and we are data-dependent.  While my central tendency is to think that we just sit here the rest of the summer, I am feeling better about finally taking some outlier tail views. We had two notable developments on the curve last week – interestingly at the very extremes of the [...]