Thursday, 31 May 2012

Did I say 145, its 146 now for this Bund

This market is getting crazier by the day, it was just yesterday the Bund hit 145, representing a yield of below 1.3% for 10 year money, scratch that lets make it below 1.25% as the Bund broke 146! Admittedly I went short yesterday thinking this was good value here, but got stopped out, and now with June Bund expiring soon, its best to now look at sept Bund. Thinking where we are with stocks, and considering where we have been in the past few years, its not inconceivable to think that if we break 12000 in the Dow and start heading towards that 10000 level, we may even approach 150 in the Bund. The name is capital preservation, and this is the main driver at the moment. Regardless of whether the trade actually makes sense. Along with the Bund rise, we see continued dollar strength, with the Euro hitting 1.2340 and Sterling pushing below 1.54. While uncertainty still exists, I don't see no reason why the current trends wont continue, although the likelihood of some type of global intervention is more likely as this often happens during dire times, so watch out for the reversal!

Wednesday, 30 May 2012

Bunds break 145

As worries persist in Europe, so does the safe haven buying, with the Bund touching 145, for a record low yield just above 1.3%. The rally in the bund is flattening the curve further, suppressing spreads, as we continue to grind lower. Euribor activity has almost been non existent volume wise in the past few days, which has made trade opportunities very hard to come by. Short sterling has been a bit more active, with shorts being the play of the days as gilts push higher too. Talk of euro zone integrated financial system, helped boost the Euro momentarily, with a 50 pip spike on the comments, but we quickly faded the move. The main talk of the week will be the US job numbers on Friday, and they will set the tone for stocks, as the US markets have held up well on the perception they are riding the downturn better then most, but if we have a weak number, we could see a big drop off in US equities. Below is short video of the moment Bunds broke 145

Thursday, 24 May 2012

New lows in Spreads

With the raft of poor data out this morning, we got some strong selling pressure in all parts of the curve. The 2s-10s spread hit an all time low as the Bund hit a high of 144.58. This coincided with very weak euro, which hit a low of 125.12! Euribor spreads at the front end has been under pressure with the front few spreads in the negative, the Mar13Jun13 spread, went trading 1s, and considering I was long before this it was quite stressful as it looked like it was going to break to the downside, but as often is the case we bounced back up which gave the opportunity for a scratch, to live to fight another day. Below is some video analysis:

Wednesday, 23 May 2012

Euro reaches 2 year low

The most obvious trade panned out over the past few days and that was to go short the Euro. It held up for a long time before finally caving in and now trading 1.2550, reaching a 2 year low. This was couple with a bloodbath in the equity markets, and Bund hitting a new high at 144.28.. do I hear 145? Spreads as you would expect have gone further down, after holding up relatively well over the past few days. I have been short the back end, namely Dec13Mar14 at 6s, and Mar14Jun14 at 8.5s. To get my half tick on these was a long old wait, but it finally came. I have now switched my attention to front end where I have gone long Mar13Jun13 at 2s, and currently in the red on this as the overall sentiment of the market has pushed this lower, and we teetering with the 1.5 level. The market tone now will be dictated by a meeting by European delegates regarding possible steps to stabilise the situation. Any surprise announcement could lead to a big rally in these stock markets and sell of in the Bunds, as so much pessimism has been priced in. Any sort of indication that Germany might change their stance on the adoption of the Eurobond mite see us change course, however this will most likely be just temporary as it is likely we will continue on this course afterwards. Looking forward I will see what the announcement is from the meeting before deciding which way to trade.

Friday, 18 May 2012

Facebook IPO not the spark that was anticipated

Today the whole story was about facebook. In other stuff, Bunds touched 144, spreads came off, but volume across the Euribor strip was very low as there wasn't much volume, so all in all ended up being a very quiet day for me personally. Facebook, despite all the hype and media coverage, opened at 42.05 and within minutes got sold of hard, and tested 38, where it is believed underwriters helped prop up the stock and push it back up again. Its a far cry from the 50-60$ price that some people had tauted as being the price we could reach. It is a sign of the current environment we are in as will as the fact that Facebook has a huge market cap. Currently however we are retracing as more order is returning to the market, although I think we will breach that 38 Ipo level soon.

Thursday, 17 May 2012

Spreads under pressure as Greece verging on Bankruptcy

Well last post I said 143 might be a ceiling on the Bund, but clearly that didn't work out as we broker through that, but we have tested 143.69 on numerous occasions and for now that seems to be holding. At this current moment the best way to trade all of this, is to stop trying to make sense out of it. German yields at sub 1.5% don't make sense, but does it matter...NO. Trade the sentiment, but be prepared for some short term solution which inevitably is going to give a spike to the equities and drop in bonds. When that will happen who knows. We have had like 10 losing session in a row for the NASDAQ, as well as other indices, and historically when such a move has occurred you often get a hard push to the upside for a brief period before resuming the original trend. That may be the opportunity to short his market, as there is no fix for Greece's problems, and they will inevitably in my opinion leave the euro. As far as spreads are concerned, as you would expect given the deterioting credit condition of Euribor, we are coming off, trading at lows. We went as low as 1.5 in Mar13Jun13, 4.5 in Dec13Mar14, to name a few notable ones. Both times they proved to be good longs as we have popped up a couple of ticks yesterday. Around the levels we are at now I'm looking to short, I managed to short some 4.5s in Jun13sep13 with a lucky fill, and looking to do it again if an opportunity arises. In the Short Sterling space, we are under pressure on all the spreads, as the BoE revised down growth forecasts in yesterdays inflation report. That sunk cable 70 pips, and we are hovering around lows in the short sterling spreads. I've used this opportunity to get long a bunch of them, I'm long 4s in Mar14Jun14 currently, given this was 7s two days ago. Hopefully this gives an out some point today. Looking forward,trade will be dominated by Euro zone developments, hopefully it provides the volatility need for some profitable opportunities.

Friday, 11 May 2012

143 the ceiling for the Bund?

As we go ever higher in government bond futures, the Bund tried staying above 143 for a third time today, but again it buckled and now we trade mid 142s. Its no surprise as a yield of 1.5% in the Bund is pushing the boundaries of what is really worth wile. The push higher was in part to the usual problems in Europe, as well as weaker PPI numbers out the US. Further was the news that JP morgan may lose 2 billion in a HEDGE gone wrong! This wiped 9% of the share price as I write. Spreads in the STIRS have been edging down today back to its lows in the red months as we come back down from yesterdays pop up. It was quite frustrating as I was short everything as we kept rising yesterday and ended up scratching pretty much to then see it come back lower today. But this is the game. Today I went long 3s and then 2.5s in Mar13Jun13 and got out at 3s, and went long 4s and 3.5s in Jun13Sep13 and got out at 4s for a marginal gain on the day. With European woes, the relationship between the Bund, bobl and shatz with the euribor has flipped. As we go higher in those contracts we are coming off in the front months in the Euribor as credit risk grows. Using the shatz as a gage of where the Bor is going isn't working of late, so just relying on good old spread ranges. If credit conditions deteriorate we will go negative for all these spreads, so I will be careful going long if Spain's debt conditions to get worse. Next week on Wednesday we have the UK inflation report which could be very interesting as the BoE have said they are worried about inflation, so hopefully this will provide some good volatility. Have a good weekend!

Tuesday, 8 May 2012

Credit risk increases on Greek default chat

We are seeing a big drop in the TED spread, reminiscent to what we saw in 2007 as the Euribor and Shatz are going in opposite directions. The fact that the Greeks are having trouble forming a government, it looks likely that the next tranche of the bailout may be withheld. This in term has led to the Euribors being sold off relative to the Shatz, as investors flock to German government debt and away from AAA rated Euribor. Also if history is anything to go by, if the threat becomes more credible, we could see interbank lending rates continue to increase, and we mite have banks reluctant to lend to each other again, and this in turn leads to another freeze in the financial markets. But that is still some way away, but its good to remain cautious and use the past as our guide for what could happen. Either way as far as trading is going, it s a tough day to be a mean reversion trader and the blow out in the TED could be the first of many, if this uncertainty continues.

Friday, 4 May 2012

Non Farm Disappoints again

Non Farm Payrolls came in at 115k, 45k below expectations, which lead to a sell off in the stocks markets. The US market in my opinion have been due a sell off as Dow was at 4 year highs 3 days ago, and given the raft of disappointing data it is normal to assume some money will come off the table. Whilst the american indices are up 10% for the year, the FTSE and European indices are hovering near flat, which shows the massive performance disparity between these regions, and since we are connected in this world, I would assume that the american markets will start converging with the UK markets over the course of the next few months. Bunds broke 142, it keeps going higher, as investors flock to safe haven assets as we keep flattening across the Bond yield curve. As you would expect with such flattening, we have narrowing Euribor spreads, which are testing the long term lows. As I did before, I am buying down here, where I believe risk to reward is good. The 4.5s in Jun13 sep13, worked out well over the past couple of days, and I have gone long small again right now, aiming to buy more at 4s should it get there. Im also looking at Dec13Mar14 spreads at 6s which I have gone long at which is lows of this spread. It looks like ill have to wait till Monday to see if this turns out to be any good. Volume generally has dropped off in the Short end, as Mario Monte didn't indicate any further easing measures in yesterdays rate meeting, and the ECB kept rates on hold. With not much more new information it looks like traders are staying on the side lines. Below is some video analysis, including some leaked Non farm moves.

Wednesday, 2 May 2012

Spreads Fall as Bunds break 141

We have seen a sell off to the low of the ranges amongst the Euribor curve as the Bund first broke 141, and now is close to testing 142, as poor PMI numbers out of Europe as well as a poor ADP report out of the US lead to more safe haven buying. The Dow is trading at 4 year highs as is the Bund, which is being fuelled by cheap money. This in theory can continue until monetary stance changes, but it seems as though there is more likely to be further easing rather then tightening out of the US, which could fuel this rally more. After being off the past week, I have entered today long 3.5s/4s in Mar13 Jun13, Im looking to go long 4.5 in Jun13Sep13 too as this has been a solid level in this spread over the past few months. We have alot to look forward to this week, with the ECB rate meeting tomorrow as well as NFP on friday. Hopefully this will dish out some good volatility. Bunds now look well and truly bid, and it has broken the trend of retracing 100 ticks on the last move up in the mid 140s, which was inevitable eventually. With yields now at 1.6% we are reaching Japan yield levels, and so any good news I think can trigger 100 point sell of at least in this Bund, although i think we will stay above 140 in the near term.

Short Sterling spreads nudge higher on hawkish Fed; Walmart blowout

As most must know trading Short Sterling is a bit of a bore, and has been for a while. Having managed to get out of my 2 month hold before,...