Forum Replies Created

Viewing 10 posts - 1 through 10 (of 545 total)
  • Author
    Posts
  • Curve Advisor
    Keymaster
    Post count: 612

    Apologies for the delay in replying. When I referred to the “rate implied by ED12”, I just meant
    rate = 100 – ED12
    But the “ED12” I used was a constant maturity generic 12th quarterly ED contract. Constant maturity contracts ensure that you are comparing apples to apples in terms of the maturity that each ED contract is expressing. For example, ED1 can have as few as 1 day to settlement to as many as 98 days (which could be the equivalent to and ED2) to settlement. So when looking at historicals, you want to make sure you are looking at EDs that are the same days from maturity.

  • Curve Advisor
    Keymaster
    Post count: 612

    I have a new article on Seeking Alpha on the return of the turn. This was written just this past weekend, on a theme I had been discussing in the CA for the past few weeks with clients.

    ***

    We locked in another 38.2 basis-point units last week. This week is your last chance to lock in 2017 rates. Sign up now and get: (1) four free back issues of the CA, (2) grandfathered 2017 rates for nine months and (3) a 25% introductory discount for new subscribers (discount code: INTRO). Subscribe by December 31 to lock in the lower rates. There are also discounts if you want to prepay for 6 or 12 months.

    ***

    I would like to wish you all the best for the New Year.

  • Curve Advisor
    Keymaster
    Post count: 612

    Viewer Mail: Have noticed that open interest on both edz8 and edz9 are elevated in relation to rest of the curve. Appears has been that way since September. We dropped some after dec midcurve option expiration but still high. Either someone has large edz8/edz9 position. Or maybe related to the Turn??

    Answer: Actually, the EDzs have had elevated OI for well over a year: https://www.curveadvisor.com/2016/05/algos-among-us/

    Interestingly, they seem to lighten up on their positioning for year-end. The OIs in the Z contracts have dropped noticeably in the past week+. The OI decreased noticeably last year as well. https://www.curveadvisor.com/2016/12/rip-z-algo/

    I don’t think this is related to the turn, as the turn has been fairly stable for a while. But I think there is upside… https://seekingalpha.com/article/4134111-return-year-end-eurodollar-futures-turn

  • Curve Advisor
    Keymaster
    Post count: 612

    When I mentioned the flattening, I was mostly referring to 2019 and beyond (as per the quote). 2018 is just going to converge faster to the BOC policy rates, so they will be more affected by the data and policy bias. Last week, the US, UK and Canadian long end all flattened noticeably. Those countries all happen to be higher yielding than say the EU and Japan.

  • Curve Advisor
    Keymaster
    Post count: 612

    BAX right now is hard to trade without a view, and I currently don’t have one. Nothing looks like a screaming buy or sell right now, without a view. The one interesting thing we saw the past two weeks on the US curve is large EDZ8-M8 calendar spread buying, only to have to go the other way last week. The flattening bias is going to be strong, with lower inflation the past few weeks in Japan, the EU and now China. I think as the curve continues to flatten, a subset of the market could take the flattening as a sign of an impending recession. So this makes 2019 hikes a little dicey.

  • Curve Advisor
    Keymaster
    Post count: 612

    BamBam: I have no strong view on when the BOC will hike. I was just saying that considering we are in a yield-grab environment in the long end, we should “consider” buying a fly around hikes in 2019 and beyond, rather than year spreads. Of course, it all depends on the level of the front spread you want to buy and the value of the spread you want to sell.

    Garvit: In general, I think all the fixings can be noisy in December. Especially if it goes over year-end. But yesterday, didn’t CDOR fix 1.434, which is +0.014 on the day? Since that is a negligible change, I think that’s why we rallied. I don’t look at the fixings regularly, but that’s what one of my colleagues told me.

  • Curve Advisor
    Keymaster
    Post count: 612

    Thanks for the new posts and color on Canada. I’e been a little busy with the holidays and new projects, but I’ll try to reply in a timelier manner. I don’t follow Canada as closely, but if you want particular feedback on anything (shape of curve, charts (put labels), etc) let me know. I think Canada is a little difficult to trade right now, since they are very data-dependent, and you need to have a strong directional view to trade the very front of the curve. The more interesting part of the curve is on the back end, as Garvit was asking. A similar thing is occurring in the US, where logically, if the US economy is doing better, and the US tax reform is going to increase the deficit, you would expect the longer end to sell off. However, we see the longer end flattening on selloffs. This can happen as more hikes are priced into the front end. However, in this environment, the flattening is more extreme because of the ECB and BOJ QE. I had written some essays on this on the web site. I also wrote something else this weekend, that will be posted in 2 weeks.

    I have been saying for a while now that if you have a bearish rates view, you are better off sticking to the very front of the curve (2018). Or you can convert a spread to a fly (where you sell spreads behind the spreads you want to be long). It’s not that the BOC couldn’t hike more than 3 times – it’s more that Canadian tens look attractive when compared to 0.30% in ten year bunds and 0.04% in ten year JGBs. So you can’t trade the long end of Canada (or the US) in a vacuum.

  • Curve Advisor
    Keymaster
    Post count: 612

    Many of the things I wrote about EDs can be applied to BAs. I look at BAs weekly, but I prefer concentrating on countries where you can trade the STIR futures past 2-3 years. There aren’t as many relative value things you can do with only 2-3 years of futures, other than perhaps 3mo and 6 mo spread and fly structures. Also, when a central bank acts meeting-to-meeting, it also makes trading highly data-dependent. If you have any specific questions, let me know.

  • Curve Advisor
    Keymaster
    Post count: 612

    QUESTION 3 – LIBOR TRANSITION) I stumbled across your website recently and found it very informative. I myself am a STIR trader mainly trading Euribor. What are your thoughts on the lack of volatility in STIRS relative to past years and what do you think will happen to eurodollar when regulators transition away from libor? Do you think it will still be the most liquids contract in the world? Also, the IMM seat price on cme has dropped significantly from its highs the past few years do you think that is the new normal?

    The lack of volatility in STIRs just follows the lack of volatility in other interest rate markets and even equity markets. Volatility for fixed income products are also a function of the level of rates. When interest rates are near the zero bound, you generally don’t expect it to move as much as when rates are higher (since there is more possible outcomes). Also, it doesn’t help Euribor that Draghi tends to be dovish. It doesn’t help Eurodollars that the Fed has been “gradual.” And the BOJ sitting on a 10bp wide band in JGBs is just crushing global rates volatility. Finally, the advent of algos and ETFs also puts some downward pressure on volatility.

    I think the transition away from libor will cause Eurodollar future trading volumes to decline. However, the CME will have a new futures product to replace it (based on the new reference rate). Since I do not see the need for swaps hedging and rates speculation to decline, I think between the fading Eurodollar product and the new reference product, the combined trading volumes should stay elevated. It may even increase if this adds to more cross-market trading.

    I know nothing about IMM seat pricing. I’m guessing the numbers of locals and brokers that have gone out of business over time may be causing some downward pressure in pricing. But again, I know nothing about this.

  • Curve Advisor
    Keymaster
    Post count: 612

    Sorry. I had a brain cramp. I suppose a 1.4bp move could be large or small – it really depends on what happened the previous 24 hours. For example, if the Dec meeting increased 2bps the previous day, then a 1.4bp rise could be considered a decrease. This is because the 3mo libor rate is a spread function over the hike probabilities. Assuming the CDOR fixing goes +2 days like the other libor fixings, that could also mean more volatility on Thursdays, since the fixing then goes over a weekend.

Viewing 10 posts - 1 through 10 (of 545 total)