Long Term Trade - rising US Interest rates

[DionysusToast]

All

It seems to me that US interest rates will have to start rising fairly soon, although the timing is probably the most difficult thing to nail down on this trade.

This is an area in which I have not traded before.

What are the possible vehicles/ways of trading this. Realistically, it's going one way only so something like a backspread may be appropriate...

Thoughts?

Pete

 

[Black Swan]

Are the markets not expecting more Q.E. in the region of $500bl from the Fed/US govt? Not sure how that'll sit with raising interest rates, could really spark off a big time currency war, not just the clandestine stuff that's happening daily..

But it's a position trade/s for you surely DT, do you reckon Q.E. + base rate rise will be nuetral on the dollar, or do you want to pile into Aussie, Swissy, Yen, Euro and stay there looking at the dailys/weeklys once a day...?

Interested to see how this thread develops tbh..nice one..

 

[anley]

Sell Eurodollar futures short.

I haven't looked at how they're priced but I'd assume the longer dated months already have interest rate rises priced in. In effect what you'd be speculating is that there would be higher than expected rate increases than what is already priced in.

 

[alexander]

For now they expect rates to go even lower because of more QE.

 

[arabianights]

yeah at the current prices it really is as simple as selling the futures short, they're fooking high already.

Not really any need to buy spreads... I think you're rather limiting upside too much for a small risk reduction.

 

[Scotty2Cues]

All

It seems to me that US interest rates will have to start rising fairly soon, although the timing is probably the most difficult thing to nail down on this trade.


Pete

Dosent US have near zero inflation (some worried about deflation), plus more QE, so dont think they will be raising rates anytime soon....

 

[Scotty2Cues]

I think US bond yields are narrowing too, one reason being QE? so even more reason rates wont rise yet

 

[Black Swan]

For now they expect rates to go even lower because of more QE.

Minus base-rates? How's that work then...?

 

[scose-no-doubt]

Don't bait it BS this could be a good thread let's not make it flamey.

 

[Black Swan]

Don't bait it BS this could be a good thread let's not make it flamey.

not being provocative...genuninely interested, the guy might have some useful insight for all I know...

 

[arabianights]

He didn't say that though!

 

[wackypete2]

All

It seems to me that US interest rates will have to start rising fairly soon, although the timing is probably the most difficult thing to nail down on this trade.

This is an area in which I have not traded before.

What are the possible vehicles/ways of trading this. Realistically, it's going one way only so something like a backspread may be appropriate...

Thoughts?

Pete

How to time this type of trade is the million $$ question.

Peter

 

[meanreversion]

DT, be wary with this trade idea. There are many, many prop traders who've done their cods over the years trying to be short JGBs. It might seem logical that US interest rates have to go up, but that doesn't mean they will. After all, if you had said to someone in 2000 (when 10yr rates were 5%) that in ten years the US government would have to borrow $2 trillion a year, the first reaction would probably NOT be "oh I bet treasuries will be on the moon".

Look at a chart of the 10yr T-note, it's a massive bull market and trying to pick a top will be extremely difficult. You're better off waiting for the sell off to begin before jumping on board.. maybe when the 50 day MA goes below the 250 day MA.. something like that. In the meantime, it's a huge up trend, either stay flat or look to go long..

 

[arabianights]

or... start averaging into a short, say 1 lot a week, very small, cognizant of how far it can go

much more sensible than trying to pick a top

 

[Martinghoul]

In what timeframe do you expect these rate rises to occur? FWIW, unless it's very short-dated, I would only do this in options. These big-picture macro trades are notoriously difficult to hold due to choppiness. Moreover, as meanie mentioned, for an understanding of how wrong your trade can go, all you have to do is look at JPY rates.

 

[meanreversion]

I highly recommend "The Big Short" by Michael Lewis. There were several hedge funds who cleaned up on the sub-prime debacle, but they suffered intense pain before the sh1t hit the fan. The market can stay irrational longer than you can stay solvent etc.

One trader, Michael Burry, realised this and pestered the banks into creating a CDS on sub-prime mortgages. That way, his initial outlay was finite and a small percentage of what he stood to make. However, he had to battle with his investors for a year whilst the mark-to-market went against him day by day.

People like him cleaned up because they did tons of research and were very smart about how they positioned themselves, but they still had to sit through month after month of losses. Burry said that in 2005 he wanted to go to sleep and wake up in 2007, because that was when he felt sub-prime would finally explode.

QE is an odd one. The Japanese did mountains of it and the JPY is now super-strong, and their yields are rock bottom.. makes no sense. Ok, so the Japanese traditionally have a high savings rate but that has changed in recent years.

Maybe this is a prelude to the end of fiat money. All physical goods increase in value as the money supply is increased exponentially.. even paper goods (stocks and bonds) rally as the currency itself is debased. Now, where does it end? You would have to think inflation is the ultimate outcome, but again, look at Japan - no inflation for decades..!!

 

[gooseman]

eurodollar put skew martin-now there's a doozy.

 

[Martinghoul]

eurodollar put skew martin-now there's a doozy.

Well, that's the thing exactly... Does anyone expect these rate rises next year? 'Cause that's about as far as you can go with Eurodollar options... If you have big balls (like Cap'n Arab), you should do outright, but these games ain't for yours truly.

 

[arabianights]

You can just treat the outright as an option though... Price it as 100-price and assume that if libor is going to go sub zero you'll get plenty of warning.

 

[meanreversion]

Guys, don't anyone do anything until we know 4xpipcounter's view.