- Tried for ages to sell this but got nowhere fast. In the end got tired of waiting and unlegged the long UST leg, leaving short Bunds naked.
- Chart now looks like the SHS top has broken for real now.
- Unsure of what to do here. Do I buy UST to lock in spread at a crap level ? I had thought that the spread would perform under an environment of higher yields. How wrong could I be.
- In danger of missing the move if spread performs due to UST yields going lower but I just can't bring myself to go long here at 3.25%. This sucks.
- The only thing that will make me feel better is if both US10YY and EU10YY both rise now. (But already wrong once).
- Once again, in trouble because I tried to be too clever.
- Took off the entire long US10T leg of my Bund/US10T spread last night. Hope I will not regret this. Usually when I try to squeeze more out of a spread trade by unlegging, I end up snatching defeat from the jaws of victory.
- The spread chart is looking good. Trading at +4 now, which makes the SHS top looking ever more valid.
- EU10YY is above 3.44% chart point, (now 3.47%) pointing to 3.67%. I have included the actual continuation Bund futures chart here for a change. If we close this week below 120, then 117.52 beckons.
- Somehow, I can't see the spread performing due to a bullish (ie bunds and UST rallying) market. [US budget deficit, inflation worries, weak USD, better growth]. My conclusion is that the spread will go negative under bearish circumstances. Hence my attempt to be a bit clever here. I have my GTC TYM1 bids in at various chart-points below to restore the spread.
- Hope to break my duck with this one. Been on a negative roll lately - buying soybean, selling short sterling just before RPI decline to 4.0%. Timing on these 2 could not have been worse. Not to mention uncharacteristic dithering in selling USD/JPY.
- 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.
- Legged into this. Sold Bunds at 3.19% (on Friday) and just bought US T-Notes at 3.32% ie spread of +13.
- Using ratio of 4 Bunds to 7 TY (1.75x). That was the last reading of Bloomberg PDH2 that I got. (Would appreciate if anyone who knows that this has changed to please tell me).
- Not sure how this spread correlates to rest of Core Book. Will observe. For now, will treat it as separate.
- Flipped flopped trading this a few times. Long short long short - all not very fruitful before.
- Time to revisit. SHS top breaking down very nicely again. NL at +10. Now at +9.
- SHS downside objective is at -69 (corrected: error on my chart). Huge potential.
- Core book already short TYM1. Due to very high IMR used, I have started off by switching my existing TY short into equivalent Bunds short instead of chalking up even more IMR with 2 new sets of outright positions.
- Trade : +TYM1 @ 120-22 (3.28); -FGBLM1 @ 122.62 (3.19%). Spread +9. No longer short TY now.
- Finally this has pulled back to +38 where I have gone long Bunds/short UST 10 years. +FGBLH1 @ 122.62 (3.29%) vs -TYH1 @ 118-13 (3.67%). Missed better execution yesterday as I was away at Resorts World.
- Recap : Give up on weekly SHS top as it has taken too long and pattern looks damaged now. Focus instead on SHS bottom on monthly chart, objective between +55 to +60.
- If I am lucky, the weekly pattern can turn out to be a SHS bottom too and targets the +70s. Need to close >+47 for that to come into play.
- Had been looking for a SHS top on the weekly chart for the longest time. Traded in and out of this, legging here legging there with some success even though the SHS never came to fruition. Still possible but looks increasingly unlikely by the day now.
- Monthly chart price action of the last 7 months looks like a SHS bottom instead.
- Conflicting reading on different timeframes. I would now prefer to try and buy this on the dip to +37 (vs current +41). SHS bottom objective in the + mid-60s. [I can easily envisage US10YY at 4.00% and EU10YY at 3.35% eg some kind of inflation driven lower USD/FX but Fed-does-not-care scenario].
- Updated chart. Intra-week high of +52 last, now back down to +27.5.
- Read current price action as ongoing formation of Right Shoulder. Trade failed once before with dark blue NL. Now new SHS NL in bold red just below +10.
- The new SHS top, if it works, has objective even below the previous target at -43.
- Massaging position to get in the mood. Hopeful won't turn out to be anti-climax.
- Japan and China voicing support for EU bonds. Portuguese bond auction went well. (Temporary?) subsiding of EU funding fears. Spreads to bunds coming in.
- See daily and weekly candles for EU10YY. Current big white candles pointing to higher yields.
- Have today gone with the flow and sold Mar10 Bunds at 124.85. Impact on core book is to reduce naked long TY hedge = increase Bund/UST spread which has narrowed from recent +50 to current +36. Expect further narrowing.
- Long running saga of the weekly SHS top continues.
- Several failed attempts at shorting although results were a net positive purely by lucky coincidence. Squared up for the year just before this took off against me.
- Possibility of SHS remains. Much better entry levels now in the +40s. Fresh short initiated here at +41 earlier this evening.
- Bigger hurdle than before for SHS to be validated now. New neckline is at around +10. Until this breaks, can only attempt to sell this in small.
- The SHS top has never gone away. Still valid even now.
- Recent lowest weekly close was at +9 (intra-day touched +5). Since the QE2 unwind started, it has pulled back all the way towards the SHS NL (this week at +32).
- Just re-sold at +25. [-FGBLZ0 @ 127.96 (2.65%) and +TYZ0 @ 124-19 (2.90%)].
- Hedge ratio is 1.77 ie multiples of 4 bunds to 7 TY.
- Downside objective remains at -43.
- Short from +25. Now at +7.5. Part of original position a bit muddled as traded out of short Bund leg to run open long TY, which looks to have been the right thing to do (touch wood) as am squeezing more out of the naked position.
- Monthly is below support at +11 already.
- Weekly : This Friday close below +4 = signal to add on to short. Reminder : Target is -43.
- Bernanke's "case for further action" pretty much nails QE2 as a done deal. Strange that yields are higher post-speech given Fed's unlimited capacity to buy TY. Don't fight the Fed! (not so for BOJ). And its way too early for buying rumor selling fact.
- Have taken the opportunity to go outright long TY. However, rather than keep building up book size by buying yet more TY, I have chosen to unleg the short Bunds leg of my TY/Bunds spread. I don't see US10YY going too much above 2.60% and staying high (now 2.52%). Still target 2.20%.
- Bought Dec10 Bunds at 130.77 (apx 2.355%) for a start = daily downtrend line resistance on EU10YY chart. Will buy more if we were to pull back further to the weekly DTL yield resistance at 2.49%.
- So spread is reduced, and a naked outright long TY now appears in Risk Table.
- Watch those latest black candles. If there is follow through in the weeks ahead, then spreads to Germany will come in. In which case, bunds will be sold.
- Talking my book as usual. [US10YY at 2.20%; EU10YY at 2.63%; voila -43]
- One thing I learned in my 18 years of interbank trading : interest rate spread trends, once started, can go on seemingly "forever", because they are always driven by underlying fundamentals. For good trading, it is sufficient to reverse engineer those fundamentals from the chart (purely for peace of mind), rather than first figuring out the fundamentals and deciding what the trade is afterwards.
- US10YY minus EU10YY currently is at +12. On the weekly chart, we have a relatively fresh downtrend going on. Whilst it is noted that this down move started at +84, the SHS top has only just broken down at +27 recently. Objective here is -43, still a long way to go.
- [Head to NL = 84 less 14 = 70 bp. NL break point = +27. Target = +27 less 70 = -43].
- Europe's problems have not gone away. Through the recent Irish problems, both EUR/USD and Bunds have rallied, only because of US QE2. Not logical. One fine day, 1 of the 2 will reverse in a big way to reflect the underlying funding and budgetary pressures in Europe.
- Next action point : Increase trade on break of +4. Thus far, the customary (but not mandatory) pullback towards the NL hasn't happened yet. If it does, will add to position as well.
- [Next to soft commodity up trends, these IR spreads are the most dangerous trends to try fighting].
- Trade done on Friday night, overlooked reporting here. (Still trading around +23 today).
- Doubled the short Bunds/long US Ten Years at +23. Average in rate is +25.
- Reason : 2nd consecutive weekly close under SHS top neckline at +27 = confirmation of down.
- Currently trading around +22.
- Monthly : discussed briefly yesterday.
- Weekly : broken a SHS Top neckline at +27. July low at +23. A close below this should see a downward acceleration of the spread. Will add onto yesterday's initial short if it looks like we are going to close the week with confirmation. Have ample ammunition to take on additional risk here, having reduced the outright mega long TY this evening at 2.475%.
- On the downside, I would think +11, +4 and par are significant chart points.
- Slight concern : duration of RS a bit too short relative to LS so seems incomplete.
- Spread trading at +27 (US10YY 2.59% vs EU10YY 2.32%). Initiated long TYZ0 / short FGBLZ0 here.
- Breaking an uptrend line (not very convincingly though). It is more a case of me wanting to do this trade and finding a reason for it.
- This is the only prudent way I can think of to increase my long USTs position further.
- Break break +23 would be lovely.
- [Bloomberg PDH2 hedge ratio is 100 Bunds to 176 TY]
- Waited months for this to pull-back towards +11.5 to buy Bunds/sell UST. Abandon that idea now.
- Fed "move" yesterday has pushed this under the purple support line now. Changed my mind and will wait to see if downside momentum continues. If so, then opposite trade is in order ie sell Bunds/buy UST.
- With general expectations that earliest actual QE (if at all) by Fed will not be until next FOMC (02/03Nov), the threat of QE will not die and be supportive for UST. On the other side the ECB is seemingly on permanent hold. So, there is probably little reason for this chart to trade back up. Risk reward favors positioning for move towards negative.
- Time to revisit. From recent peak at +73, this has now pulled back all the way to a low of +23 and now appears to be making its way back up. Currently at +30.
- Might be a good idea to switch some of those long USTs into long Bunds instead. But first I would like to see some kind of a bottom form on a lower time frame chart.
- Will start watching this closely from now on. This is not for jumping in. Very silly if this turns out to be a down trend forming.
