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 [...]

I finished that article on regime change for a trade magazine, and it has been approved.  It should be published some time in the next few weeks (I’m guessing).  There was one part of it that I thought was particularly interesting that I wanted to highlight because it seemed very relevant to the current market.  The market positioning has been “overly bearish” for some time, and partly as a result, the markets have not been able to sell off for most of this year.  EDZ0 is UP 2bps on the year, despite much-better data and a hawkish FOMC.  That’s got [...]

One of the more interesting things from last week was that FFV-X traded up to 2bps.  For most of the year, we said it was highly unlikely for the Fed to hike less than a week before the election, and it has been close to 0.5bps for several months.  However, the “lottery ticket” effect that we have discussed for some time now has appeared in full force.  As the Fed meetings get closer, people feel the need to take a 10+:1 shot, get protection for their books, close out shorts in the spread, etc.  And with the current Fed, people [...]

[The table of Flip Trades have been omitted, in consideration of subscribers.  However, the main point of the write-up holds:  that you should adjust your trading strategy and ranges, based on the trading environment.  Don't be a one-trick pony.  Just as a good football team can win on offense, defense and sometimes special teams, you should be able to make money in many different environments.]   Last week the Portfolio just surged past the old P&L highs, and is up almost 200BUs since April.  This performance is in stark contrast to the Trade List, which has been languishing.  On the one [...]

People new to Eurodollar futures may not be aware of the various possibilities in trades that are available. Even people who have traded EDs for a while don’t think about all the possibilities. EDs aren’t like other futures, like gold or orange juice. You can actually do a lot more with them than most people realize.  Below are many of the things you can do with EDs, and let’s say you wanted to take a bearish interest rate view:   Trade Directionally. Sell a single contract (i.e. sell EDZ7). Trade Spread. Buy a calendar spread in the front of the [...]

When considering a trade, most people just think about how much a trade will make when they are right, and how much they will make when they are wrong. But those should not be the only considerations. There is also the scenario where “nothing” happens. All else being equal, you want to also make money if the market just “sits” there (via carry and/or roll). The longer the time horizon on your trades, the more important the carry and roll become. Think about “nothing” more often - it happens A LOT more than you think. So when you go through [...]