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189 Posts Total by "macrosam":
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macrosam
(United States)
5 Posts by Anonymous "macrosam":
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macrosam
United States
Posts: 190
14 years ago
Apr 8, 2010 14:12
In Thread: EUR
Greek has an inverted yield curve this morning!

1Y 7.24
2Y 7.21
3Y 7.66
4Y 7.64
5Y 7.29
6Y 7.33
7Y 7.38
8Y 7.30
9Y 7.39
10Y 7.35
15Y 7.22
macrosam
United States
Posts: 190
14 years ago
Apr 7, 2010 20:51
In Thread: USD
Equities down, treasuries up, oil down, gold and silver up, copper down, dollar up. This has the making of a flight-to-quality, no?
macrosam
United States
Posts: 190
14 years ago
Apr 7, 2010 20:08
In Thread: USD
By Steve Matthews
April 7 (Bloomberg) -- Federal Reserve Bank of Kansas City
President Thomas Hoenig said the central bank should consider
starting to raise its key interest rate sometime soon to
about 1 percent to prevent asset bubbles from emerging.
I would view a move to 1 percent as simply a continuation
of our strategy to remove measures that were originally
implemented in response to the intensification of the financial
crisis that erupted in the fall of 2008 he said today in the
text of a speech in Sante Fe, New Mexico.
macrosam
United States
Posts: 190
14 years ago
Apr 7, 2010 19:41
In Thread: Commodity FX (CAD AUD NZD NOK)
10yr treasury auction (actually a re-opening) went very well. The auction priced 3+ bps through the 1PM bid, high bid to cover ratio (maybe highest ever) and treasuries continue to rally post auction.
macrosam
United States
Posts: 190
14 years ago
Apr 7, 2010 14:26
In Thread: GBP
Hung parliament possibility will keep a lid on GBP long enough for credit-rating downgrade concerns to resurface taking GBP down to 1.45 or below. Expect it to stay fairly range-bound between mid 1.53s and double bottom until then.
macrosam
United States
Posts: 190
14 years ago
Apr 7, 2010 13:02
In Thread: USD
I wouldn't use the term backwardation towards interest rate futures as ultimately the futures reference the (forward) yield curve. But in your example, let's say I compare the June 10yr futures trading at 115-13 today to the September 10yr futures trading at 113-31. Why is there a decrease in price? One main reason is that the Sep 10yr future is referencing the 3% of 2/17 US Treasury as the cheapest to deliver (this is trading at 97-21) while the Sep 10yr future is referencing the 4.75% of 8/17 as its cheapest to deliver (this is trading around a price of 108-17). The cheapest-to-deliver treasury in Sept is more expensive than it is in June.
macrosam
United States
Posts: 190
14 years ago
Apr 6, 2010 22:58
In Thread: USD
I think the issue in your analysis is the misplacement of the relationship between yield and price because you are observing the yield on one treasury and assuming that the futures price moves respective of that treasury when in fact the futures is referencing an entirely different treasury than the one whose yield you are observing. All that is included in the price of a future is the following:

(note that CTD = Cheapest-to-deliver treasury that will meet the delivery stipulations of the futures contract)

(CTD Price - CTD Carry - Option) / CTD Factor

The basis net of carry is the option value, or theoretical option value.

If the basis net of carry is cheap, then the futures are rich. If the basis net of carry is rich, then the futures are cheap. Any disparities will be quickly arbed out by the market and its participants.
macrosam
United States
Posts: 190
14 years ago
Apr 6, 2010 21:53
In Thread: USD
You cannot compare the yield on the current 10yr treasury (the cash treasury, the 3.625% 2/20) to the 10 year futures contract. There is a difference between cash treasuries and treasury futures. Futures are short an option which is based on the cheapest-to-delivery treasury out of the available basket of deliverable treasuries. When you go long a future, you are short an option because the other party that is short the future to you has an option on which cash treasury to eventually deliver into your contract if you don't close out (this is how it is settled, similar to how barrells of oil will be delivered if you hold crude futures to settlement). The current cash treasury that the 10 year futures considers to be the cheapest-to-deliver is the 3% of 2/17, not the current 3.625% of 2/20 that you are making the price/yield comparison to. So you are comparing the yield on the 3.625% 2/20 to the futures contract that is referencing a different 10 year treasury (the 3% of 2/17) in that basket of available treasuries to be delivered.

Add to this additional distortions that can result due to the futures contract being too cheap or too rich to the cash treasury it is referencing as the cheapest-to-deliver (i.e. may be rich since requires less cash outlay than the cash treasury, etc.).
macrosam
United States
Posts: 190
14 years ago
Apr 6, 2010 20:42
In Thread: USD
Thought the minutes were clearly dovish, emphasized by "some members" stating that they saw greater risk is tightening too early than too late. The talk about mid-term inflation possibly being a risk seemed more like rhetoric thrown out there to placate hawks.
macrosam
United States
Posts: 190
14 years ago
Apr 6, 2010 18:20
In Thread: EUR
Chicago would be a great destination, Ashraf!

Just a hint.
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