Short Sterling & Euribor

[gatsu1314]

Hi everyone,
I have been trading Short Sterling and Euribor on LIFFE for over a year. The markets have recently become active. BOE hiked rates in almost a decade and Short Sterling market has become hot again. Euribor seems to be following suit with a hike next year. A lot has been happening and I would like to take this opportunity to discuss the kind of trades working in these markets.

 

[gatsu1314]

ok so have you been losing money then?

Hi Kaeso,
I had a good run last year. But I trade mostly for smaller ticks. I have been trying to capture larger moves for sometime due to increased volatility.
Do you trade any of these markets?

 

[gatsu1314]

ok so you're saying you have been losing money then?

Hi Kaeso,
Z8Z9 spread is currently trading around 25 bips. BoE has already stated that they will have at least one hike per year over the next 3 years. What's your view on this spread?

 

[gatsu1314]

ok so you're saying you have been losing money then?

Hi Kaeso,
I had a good run last year. But I usually trade for smaller targets. I have been trying to capture larger moves on the curve for sometime now due to increased volatility.
Do you trade any of these markets?

 

[Brumby]

Hi everyone,
I have been trading Short Sterling and Euribor on LIFFE for over a year. The markets have recently become active. BOE hiked rates in almost a decade and Short Sterling market has become hot again. Euribor seems to be following suit with a hike next year. A lot has been happening and I would like to take this opportunity to discuss the kind of trades working in these markets.

You are the one starting the thread and if you want to have a meaningful conversation, it is prudent to lead the conversation because we can't read your mind on what is it that you want to discuss. What exactly is meant by the markets getting "hot"? Every market goes though contraction, expansion, and volatility swings.

 

[mpups]

Do you trade any of these markets?

sorry i misunderstood, i thought you were saying you had been shorting a sterling currency contract i.e. selling GBP;

so no, I haven't traded this kind of thing but i want to if its getting hot :cheesy:

 

[gatsu1314]

You are the one starting the thread and if you want to have a meaningful conversation, it is prudent to lead the conversation because we can't read your mind on what is it that you want to discuss. What exactly is meant by the markets getting "hot"? Every market goes though contraction, expansion, and volatility swings.

Hi Brumby,
I would like to discuss the strategies working in Short Sterling currently. The long end of curve (Blue contracts) have been following Eurodollar closely. ED back curve has flattened a lot and the hike has been loaded in front to mid portion.(check US treasury 2-10) Currently, L_Z0Z1 is trading at 8 bips. I think it should trading around 13 bips considering the ongoing hike cycle in UK and good news surrounding Brexit. What's your view?

 

[gatsu1314]

sorry i misunderstood, i thought you were saying you had been shorting a sterling currency contract i.e. selling GBP;

so no, I haven't traded this kind of thing but i want to if its getting hot :cheesy:

That's great. Which markets are you trading currently?

 

[mpups]

That's great. Which markets are you trading currently?

Securities, Futures, CFDs, Options, Forex

 

[Brumby]

Hi Brumby,
I would like to discuss the strategies working in Short Sterling currently. The long end of curve (Blue contracts) have been following Eurodollar closely. ED back curve has flattened a lot and the hike has been loaded in front to mid portion.(check US treasury 2-10) Currently, L_Z0Z1 is trading at 8 bips. I think it should trading around 13 bips considering the ongoing hike cycle in UK and good news surrounding Brexit. What's your view?

I don't trade treasuries so I don't monitor yield differentials between long and short end. The consensus in 2018 seems to be an extended flat rather than any inversion. What that may imply in terms of strategies IMO is different depending on whether you trade treasuries or equities. I would like to hear your trade strategy going forward if the extended flat persist in 2018.

Below is close to 30 years of historical differentials as shown by the blue line and the grey is simply regressions. While the curve is flattening, it is no where near the inversion that precipitated the dot com bust and the GFC.

I am not familiar with LIFFE instruments, what is a short sterling instrument?

 

[gatsu1314]

I don't trade treasuries so I don't monitor yield differentials between long and short end. The consensus in 2018 seems to be an extended flat rather than any inversion. What that may imply in terms of strategies IMO is different depending on whether you trade treasuries or equities. I would like to hear your trade strategy going forward if the extended flat persist in 2018.

Below is close to 30 years of historical differentials as shown by the blue line and the grey is simply regressions. While the curve is flattening, it is no where near the inversion that precipitated the dot com bust and the GFC.

I am not familiar with LIFFE instruments, what is a short sterling instrument?

Hi again,

I agree with you regarding the broad consensus. However, going by the recent weakening data of major world economy and reluctance of Japan to reduce QE, I have a view that the yields with start to steepen owing to currency differentials.

I trade Short Sterling, which tracks the interest rates in UK economy. It is comparable to the Eurodollar market traded on CME. UK long end closely tracks the developments in long end of treasuries and Eurodollar. In my opinion, it should begin to steepen.

Which markets do you trade?

 

[Brumby]

Hi again,

I agree with you regarding the broad consensus. However, going by the recent weakening data of major world economy and reluctance of Japan to reduce QE, I have a view that the yields with start to steepen owing to currency differentials.

I trade Short Sterling, which tracks the interest rates in UK economy. It is comparable to the Eurodollar market traded on CME. UK long end closely tracks the developments in long end of treasuries and Eurodollar. In my opinion, it should begin to steepen.

Which markets do you trade?

I trade FX only, basically majors and some crosses. I monitor Central Bank policies and tier one data primarily on how it may drive sentiments and currency direction. i don't monitior yields in terms of how it may influence currency swings.

Yield movements between long and short end is narrowing and hence the flattening. You had expressed a view that the spread should be widening but have not offered any cogent arguments to support such a conclusion. Any acceleration in interest rate hikes would actually support a flattening curve rather than any steepening. I would like to understand your reasoning.

 

[gatsu1314]

I trade FX only, basically majors and some crosses. I monitor Central Bank policies and tier one data primarily on how it may drive sentiments and currency direction. i don't monitior yields in terms of how it may influence currency swings.

Yield movements between long and short end is narrowing and hence the flattening. You had expressed a view that the spread should be widening but have not offered any cogent arguments to support such a conclusion. Any acceleration in interest rate hikes would actually support a flattening curve rather than any steepening. I would like to understand your reasoning.

I was talking about the UK long end. Given the passive response of BOE with regards to rate hikes, it might actually become the case that whenever US treasury yield long end pauses, the UK long end steepens.