06 April 2011

UST-Bund Spread : Added Short @ +10

  • Original short trade (short Bunds long UST10yrs) initiated at +13 on 21Mar11.
  • Since then, this has been to an intra-day low of +3. Now pulled back to the SHS Top neckline at +10.
  • Trade : Have added on at +10. [+TYM1 @ 118-19 (3.51%) and -FGBLM1 @ 120.75 (3.41%)].
  • Observed that Bloomberg PDH2 ratio of 1.75x does not work very well. Am using IMR weighting instead = 1.4x. If I am wrong and PDH2 is correct, then I am underweight UST long = overweight Bund short which I am completely cool with given my inclination as a Rates bear (higher rates).
  • Early days yet to say if the SHS will work, but plenty of downside potential if it does. Well worth a meaningful sized punt now (best time = pullback to NL after initial break). Watch for weekly close below +4 = left shoulder low.

6 comments:

Andrew said...

Lastest PDH2 shows 1.78x probably due to surging EURUSD. Not a bad idea to go slightly overweight on shorts for RX due to ECB tom and we are near the recent support for TY. (Just caution on risk of US shutdown... as asians... I find it so weird that the govt can shutdown...)

Taichiseal said...

Thanks for confirming Bbg PDH2 still 1.78x. I was paiseh to ask you.

Andrew said...

No worries, glad to help. Though I do notice, and I am sure you know, that you are using US 10yr yield to plot agst EU 10yr, though the TY tracks the 7yr bond. CT7 is recent and less focused on, so 10yr yield is still better to chart with, perhaps just be careful with the basis since the curve been bear steepening.

Andrew said...

So keeping slightly underweight on your long TY is a good idea. The SHS looks pretty good.

Taichiseal said...

Thanks for reminder. Yes I am aware but as you say, the 10 year yield is the benchmark to follow. Appreciate the comments. Could do with more here really.

Taichiseal said...

Very lonely business, trading in solitary "confinement" from home. Lots of things that escape my attention eg the FDIC rule change impacting Libors which "Anonymous" brought to my attention the other day. I really do appreciate such pointers. Thanks again.