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BONUS: Simple Yield Curve Scenarios

By | October 8th, 2017|Categories: Positioning|

Now that we have Data Week over with, the rest of the month should have less noise than average.  However we have the following considerations for the rest of the month: North Korea. As mentioned previously, there is a 1.5 week window between China’s Golden Week, and the National Congress.  What a “coincidence” that we got some chatter for early next week!  I’m not sure we get anything, but the market is probably very short fixed income.  The last JPM survey was extremely short, and we sold off more last week.  While I think we did get some short covering [...]

BONUS: “Free” Straddle

By | October 1st, 2017|Categories: Featured, Positioning|

From time to time, I'll post an occasional trade.  You'll need a reasonable cost structure to take advantage of this opportunity. On Friday I sent out the following trade: I saw EDZ7 98.625 call trade 1.5 and that seemed really cheap.  The premise of the trade is to get a "zero cost" straddle.  In fact, according to my numbers, I think you GET PAID for owning this straddle.  This would be to buy 100 EDZ7 98.625 call vs Sell 12 FFF8. I'll do the full write-up this weekend.  But basically, the EDZ7 call traded 10K times at 1.5.  FFF8 should [...]

ED-FF is Steep

By | October 1st, 2017|Categories: Positioning|

I mentioned in client emails that I prefer taking Fed hiking views in FFs, and I wanted to explain a little more fully.  One of the things I have been doing more work on this year is looking at opportunities on the ED-FF curve.  We had a nice trade when we bought EDH8-U8 spread vs FFJ8-V8 spread at 1 and 0.5 and recently got out at 3bps. The ED1-ED5 vs FF spread curve has been wide relative to the past few months.  It’s possible it can widen more, with the recent Fed tapering which may cause spreads to widen as [...]

BONUS: Trade Thoughts

By | September 24th, 2017|Categories: Positioning|

For the rest of this month, I'll reprint the Trade Thoughts section of the CA Newsletter.  There are seven parts to the Newsletter: (1) My take on the events of the previous week, (2) A summary of where I see value on the curve, (3) The Weekly Essay, which you can access on the web site or receive in the CA Digest, (4) Trade Thoughts, where I discuss a particular area related to trading (Fed pricing, ED-FF spread curve, interesting technicals, trade basics, or where I see some value in a trade), (5) The Flip Trade Update, where I discuss trades for jobbers, (6) The [...]

Fed Dot Surprises

By | September 24th, 2017|Categories: FOMC|

I know the markets have been ignoring the Fed’s dots for some time now.  But as I always say, as the meetings get nearer, the Fed dots get more accurate.  For example, the day before a meeting, if you were to do this exercise and 12 of 16 members wanted a hike… they will be hiking.  I wanted to point out some of the more interesting features from the dots. The Core summary. I typically like taking out the high 6 and low 2 dots - just to weed out the riff-raff and see what the center of the group [...]

The Tapering Fed Meeting

By | September 17th, 2017|Categories: 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 [...]

Cute Chart – QE “Caused” Rates to Rise

By | August 27th, 2017|Categories: 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 [...]

Bearish Market Developments?

By | July 30th, 2017|Categories: 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 [...]

Dovish Central Banks

By | July 23rd, 2017|Categories: FOMC|

Last week, the BOJ and ECB leaned dovish.  The Fed next week will probably complete the trifecta of Central Bankers leaning dovish.  What else can be expected when there are few signs of inflation?  And the growth data has not been great in the US, except for maybe employment.  The prospect of fiscal stimulus could have been a bonus, but that is looking less likely in the near future. I had suggested previously that Yellen was a "scientist" and that she would start to question a rise in inflation after an extended time with no empirical evidence of a raise.  [...]

Strange New World

By | July 16th, 2017|Categories: Positioning|

We are now starting to see some things in the economy that we have never seen before: Last week, I mentioned some potentially widespread examples of wage declines in particular industries. I think in the past we may have had only a few industries here and there go through wage declines, so the overall wage picture was clearer in tight job markets.  But the advent of technology, globalization, price discovery and improved models of doing business have all contributed to downward pressure in wages (and even negative wage growth) in MANY industries.  So we have a heterogeneous wage picture in [...]