Friday, 28 February 2014

Stronger Euro CPI numbers puts a halt to the Bund

Yesterday we had quite a move up in the Bund, pushing well above 145.50 which is quite staggering! I personally kept going long 3 month spreads as they kept going lower, thinking the risk to reward on that front is very good. I ended up going long 4s and 3.5s in Mar15Jun15, 5 and 5.5 in Jun15Sep15, 7 and 7.5 in Sep15Dec15, and so on along the whole curve. This morning I was hoping for some kind of bounce, but it was the same low volume BS for the most part until Euro CPI number which came in 0.1% better then expected, which pushed the Bund 50 ticks lower and gave me my out on the Spreads. Like I mentioned in a previous post, I think it will probably go back down again, which is why I hastily got out, but those levels look golden now since the chance of negative rates is put on the back burner a bit with inflation creeping up. The number was quite surprising given lower inflation numbers out of Germany yesterday, which triggered the initial up move.

The Euro pushed up above 1.38 on the back of that number, which is now at multi month highs, and at the same time Bund Yields are at multi month lows, which goes to show the value of the US dollar right now!

Another thing to note was the push up in the Euro 15 minutes prior to the number. You can see the rise in volume as the Euro pushes up, and then you get the strong number...coincidence... I think not!

Looking forward its likely to be a choppy end to the day as this is the last day of the month, and next week we have the usual raft of data to keep us busy!

Thursday, 20 February 2014

Euribor Spreads Push Up as Equities continues its move up

After lying at levels I haven't seen in a very long time, today we got the lift in Euribor Spreads which made good on long 4s, in Mar15Jun15, 5.5 in Jun15Sep15, although bad PMI data from Germany and France will most likely mean this is a short lived bounce and we will come back down to those levels again.
I will be looking to buy at 3.5s and 4s in Mar15Jun15 all day long, and keep trying to flip it for 1/2 a tick, as I think the downside is minimal as I really cant see negative rates coming. But if that is the case then I will react to it accordingly.
It was a weird day as Equities looked weak, and Bonds were bid until Philly Fed data, and a terrible number initially pushed the market down more, and then we had a total reversal. A standard pattern of late where they buy up any weakness and as usual shrug off bad data. They blame the snow for the bad number, but it was still a bad number, but it probably was more of a QE thing, where by bad data mite reduce the pace of QE tapering. We most likely will make back everything lost yesterday in Equities cause these dips don't last long, although on any normal day this should head back down. Tomorrow is option expiry, so might cause some wild moves in some commodities, especially Nat Gas which has been moving like a nutter, spiked 500 ticks over night! Will be interesting to watch.

Saturday, 15 February 2014

Trading the TED Spread

I put together a small video into Trading the TED spread, so below is a brief description of the basic fundamentals of the Spread and the ways in which you can trade it.

Looks like 2013 again

So this week was a pretty dry week in terms of Bond trading, Euribor was pretty much untradable, where as Short Sterling was pretty lively, mainly on Wednesday with the BoE minutes which gave indications of a rate rise early next year which pushed up Yields, and has lead to multi year highs in Cable.
Spreads remained pretty stable throughout the day with a small bid at the front end of the Curve, which made for good trading, as there was plenty of movement in the outright and so many opps to get Spreads on. Infact Wednesday was my only good day I had this week, and the other 4 days I pretty much treaded Water, making a small amount, and the Winter Olympics was grabbing my attention more then the markets for sure.

In the Equity space, it was just like 2013, buy buy buy. Any bit of weakness they preyed on it like vultures and pushed this market up. Regardless of news this market was just going one way, and just as I thought, there is very little the sellers can do to cope with the large amounts cash on the side lines and the general buy side bias. In fact I read David Tepper the big hedge fund manager has 36% of his fund in SPYs and QQQQ, which just shows buying the broader market at this moment is better then trying to individually nitpick.
Next week is likely to remain quiet as Monday is a US holiday and there is not a huge amount of data out next week after, so will try to chip away as usual.

Friday, 7 February 2014

Stocks up on terrible US Non Farm Payrolls

Below is the reaction in the Nasdaq, Bund and Yen Future on the back of the bad Non Farm numbers, but we have done a full u-turn and running higher. Quite clearly the QE play is back, QE here for longer hence buy stocks, buy Bonds.

As you can see there was a push the opposite way just before the number, now clearly someone got done hard but it happens often before NFP, and sometimes they get it right so evens out at the end I guess.

Euribor Spreads haven't really done much since, and same with Short Sterling. Been pretty quiet so as usual not much continuation from the data. The fear from a day trading stand point is, if these bad numbers put back any QE tapering plans then we mite go down the very low volatility environment which will make it very tough trading wise.
However next week the main event is the UK inflation report on Wednesday, that will undoubtedly bring about a lot of volatility, so hopefully some good opps to get some trades on.

Tuesday, 4 February 2014

Euribor, Short Sterling Spreads dropping as Stocks get smashed

There has been a 4 print in Mar15Jun15, 6s trading in Jun15Sep15, and we are seeing lower levels across the whole curve in the Euribor Space as Emerging market woes as well as poor ISM Manufacturing data out of the US put pressure on the Yield Curve. This in my opinion are giving good risk/reward longs in for some Spreads. I think the downside is limited mainly cause I cant see the ECB doing negative rates, but I will react should they decide to do so.
Im looking for longs across all the Spreads I trade, being cautious with size just in case I need to average in more.
Bunds are trading 144.20, and I must say I didn't see that coming, but with the 5% plus pullback in Equities so far this year, clearly the momentum hasn't followed from last year.
Question is whether this is the much awaited pullback or something more serious, personally I think its a pullback as last years rally was way over done, like an elastic band getting stretched too far and this is the inevitable snap back.

Short Sterling has been the most lively trade in the STIR space, selling the rallies in the spreads has worked well, as Mar15Jun15 now trading 18/19s while I was shorting 22s and 21s last week. Its an interesting level here, as a long mite be good for a short term bounce, but any sign of weakening in the UK economy given the worsening data out of the US might lead to a big shift down in these spreads, as they are at pretty lofty levels at the moment, pretty much pricing in some kind of rate hike end of this year to early next year at the latest.

Big few days ahead with ECB, BoE rate meetings as well as US NFP, so looking forward to some good action hopefully!

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,...