Are JGBs about to collapse soon?

[arabianights]

I ain't shorted nuffin

 

[Liquid validity]

Gentlemen, have pity on a poor retail boy and let me know if I need to take a fundamental view on JPY.

Thats part of the problem really fundies are in tatters until the full extent of the damage and costs are known, right now everyone seems to be expecting reactor meltdown to be thrown into the mix as well, causing the current market carnage. It may well not be as bad as currently made out to be, radiation levels are not currently due to Chernobyl style total reactor core collapse, but steam venting:

http://www.trade2win.com/boards/general-trading-chat/120468-japanese-reactor-tech-info.html

If the reactor cores do hold, as they are expected to and as they are designed too, a sharp reversal may well occur. Doubt it will be the last of the wild volatility until all the blanks are filled in.

 

[arabianights]

market seems to have come to its senses in last hour from what I can see...

nothing happens overnight and tomorrow is going to be a great fade, we still have a lot of ground to come back from this ridiculous moves after al!

 

[Liquid validity]

Agreed, all hinging on reactors as short term driver (more likely to turn out better than expected...maybe), insurance and rebuild costs for medium to long term direction. Wonder if this will affect U.S. QE...
Insurance crunch...bound to be global contagion :whistling

 

[Jack o'Clubs]

Aside from the impact domestically, some interesting data on where Japanese money is invested abroad, and therefore sell-off risk if it gets repatriated. Did you know Japanese Investment Trusts own more than 10% of the New Zealand bond market!

http://ftalphaville.ft.com/blog/201...epatriation-pressure-points/?updatedcontent=1

 

[lhackett]

Hi all,

Does anyone know how to calculate the potential downside in this trade?

For instance short JGB 10 year at around 13,900... (yield is around, 1.5%) - as I understand it 6% yield would take the price to around 10,000.

Let's say the yield goes to 1%, 0.5% or 0%, how high would the bond go?

I'm sensing some sceptism around shorting but would like to weigh up the risk.

 

[Martinghoul]

Hi all,

Does anyone know how to calculate the potential downside in this trade?

For instance short JGB 10 year at around 13,900... (yield is around, 1.5%) - as I understand it 6% yield would take the price to around 10,000.

Let's say the yield goes to 1%, 0.5% or 0%, how high would the bond go?

I'm sensing some sceptism around shorting but would like to weigh up the risk.

Do you have Excel? You should be able to do this calculation in Excel very easily...

 

[lhackett]

Thanks - yes I do but not clear on the formula.
I tried what I thought was correct but didn't seem to produce sensible results...

Leigh

 

[Martinghoul]

Ah, yes, you can't use 139, that's the price of the futures. You need to multiply this by the conversion factor to get the fwd px. Use a conversion factor of 0.762782.

 

[tbonetmoney]

Did anyone do the math, I would also like to know what the potential downside would be. I am afraid I still don't understand the formula.

 

[Pento]

Lets not forget the bond could trade at a negative yield, so your maximum downside on a short position doesn't stop at 0% yield

 

[IAMRightAgain]

Hi all,

Does anyone know how to calculate the potential downside in this trade?

For instance short JGB 10 year at around 13,900... (yield is around, 1.5%) - as I understand it 6% yield would take the price to around 10,000.

Let's say the yield goes to 1%, 0.5% or 0%, how high would the bond go?

I'm sensing some sceptism around shorting but would like to weigh up the risk.

Has anyone done this calculation yet? Now we are at 1,03% and JGB (or mini MJ) futures are priced around 141 to 142. Where can I get right price (conversion) factor and how should I us it in calculation?

 

[Martinghoul]

Has anyone done this calculation yet? Now we are at 1,03% and JGB (or mini MJ) futures are priced around 141 to 142. Where can I get right price (conversion) factor and how should I us it in calculation?

TSE : Deliverable bonds and conversion factors

 

[IAMRightAgain]

TSE : Deliverable bonds and conversion factors

Thank you! But I still don't know, how to calculate corelation of interest rate of 10y bond and price of future contract.

 

[Martinghoul]

Thank you! But I still don't know, how to calculate corelation of interest rate of 10y bond and price of future contract.

You can't "calculate" it, really... At every moment in time, assuming little or no switch risk, what you can calculate is the fwd yield of the CTD out of the delivery date, based on the current price of the futures contract. The principle is described in another thread here, where I also attached a Eurex doc that might help you understand. Let me know if you need help locating it.

 

[IAMRightAgain]

You can't "calculate" it, really... At every moment in time, assuming little or no switch risk, what you can calculate is the fwd yield of the CTD out of the delivery date, based on the current price of the futures contract. The principle is described in another thread here, where I also attached a Eurex doc that might help you understand. Let me know if you need help locating it.

Yes, I need help locating that thread So, in the concrete case of JGB (or mini version MJ) futures, one can't determin for sure, what is downside risk of short position and what is cost/profit of holding that position?

 

[Martinghoul]

Yes, I need help locating that thread So, in the concrete case of JGB (or mini version MJ) futures, one can't determin for sure, what is downside risk of short position and what is cost/profit of holding that position?

Well, under what circumstances can you ever decide what the downside risk of your position is?

Generally, tell me what you want to do and I might be able to help you go through the calculations.

This is the thread I was referring to:
http://www.trade2win.com/boards/futures/139612-bund-dv01.html

 

[lketoshort]

Yes, I need help locating that thread So, in the concrete case of JGB (or mini version MJ) futures, one can't determin for sure, what is downside risk of short position and what is cost/profit of holding that position?

I'm just not trying to get my hands around futures, only interested in JGB's, but I don't think you can know the max downside if you assume rates can go negative. If you floor rates at 0% then I think you can calculate the max loss.