Monthly Archives: March 2013
Has the Long end run out of Flight To Quality appeal?
You the Twitterati I have respect for (well most of you). I know quite a lot of the tweeps I follow are very well informed and fully understanding of all the smart stuff. So please reply to my post as I think I will benefit from your input (NOT on my grammmer or speling tho please(I know thats poor))
The events of the past few days have frustrated me. I knew what the market should do in this instance. (These “black swan” events are not really black swans, more “known unknowns” these days). So I didn’t lose any money. I’m frustrated because I didn’t really make any money. Why? those who follow me on twitter would’ve seen my “Don’t buy teds mantra” So why didn’t I sell them. I knew front Euribor would under-perform Schatz, Bobl, and Bund. It really should’ve been a simple case of buy Eurex German bonds and sell white and red bor strips. The nature of the move was different to all those other serious shock events.
Every rumbling of human waste hitting the fan led to a big jump in bond prices. Reducing interest rates on the AAA rated whilst everything else gets left behind well that’s my recollection anyway. I’m not a @ the market kinda guy, I like to be filled longs on the bid shorts on the offer as much as possible unless puking for big losses….then Somehow I manage to sell longs out below bid and cover shorts above the offer. (You know the feeling).
What caught me out over the #Cypriout shenanigans was the lack of FTQ buying of bonds. Yes we did open a full 100 ticks higher Monday morning but then spent the rest of the day drifting off. We didn’t revisit those highs till late Tuesday after it was clear that Cyprus was going to reject the deal. Even when we did it was with very little conviction. So it was up to the short end to really get sold hard for the curve shape and ted performance to move as expected.
Why did this occur? I know very little about Swaps, FRAS, CTD’s, off the runs and all that clever underlying stuff. I like to keep it simple.
All the other times long end rates were much higher so there was room to go. Maybe the (if there is such a thing) great rotation is about to happen. No one wants to be holding long end bonds at these rates even if Cyprus is about to join Russia!!!! (SandP will still make a new all time high come Friday).
With The Dow At An All-Time High, Citi Unveils HUGE, Ultra-Bullish Bet On America
With The Dow At An All-Time High, Citi Unveils HUGE, Ultra-Bullish Bet On America
The Dow has made brand new highs for 9 straight trading days.
And rather than make people nervous, it seems to be sucking in even more bulls, creating even more optimism.
In a new note out this evening, Citi macro strategist Jeremy Hale unveils a series of new trades, several of which can be characterized as: GO AMERICA.
Here are some of the big ones, with our summary of his rationale in bullets:
Sell US Treasuries
- This is simple. Because Citi has an optimistic take on the US economy, interest rates are likely to rise, slamming Treasuries.
- It’s not impossible that we could see another 1994-style bond selloff/yield spike.
Long the dollar vs. G10 currencies
- US economic outperformance is now associated with a strong dollar. The dollar will do well against a basket of currencies, which includes the Swiss Franc, the British Pound, the Japanese Yen, and the Norwegian Kroner.
- Fed may turn less accommodative this year, which will help further.
Go long US equities vs. corporate credit
- Companies are starting to lever up and take actions that are pro shareholder (dividends, buybacks, etc.)
- Equity markets are still just generally cheap.
There’s no doubt that the bulls are on parade.
This comes after Morgan Stanley’s big call about an “inflection point” for the US economy.
Heck, even Richard Russell is a bull.
There’s a feeling that (and this is especially so after today’s retail sales report) that the US economy is bulletproof, the Fed isn’t going to screw it up, and things won’t be too bad in Washington, beyond what everyone expected. Risk on.
curvededge 