This CTA proxy project is entering the home stretch...for the first iteration, that is. When modelling bond futures, it's pretty clear that you need to get the roll correct, and for the purposes of this exercise Macro Man did not. Ordinarily the matter is somewhat trivial when determining signal (but not P/L), but when the CTD changes the basis between quarterly contracts can be fairly large. This looks to have been an issue with the last quarterly roll for Bobl, for example. It's also worth noting that CTAs typically run models on different time horizons. These are what you might call intermediate term models...for the next phase of the project, macro Man would like to model 3 time frames to get a more accurate picture of how CTAs are actually positioned.
Anyhow, here are the results:
US 2's:
US 5's:
These models have front end bonds tripping short before getting Yellened.
US 10's:
Longer maturities stayed long.
US Bonds:
Ultras:
Canada:
Schatz:
Bobl:
In this case, the signal from the ECB sell of was exacerbated by the roll.
Bunds:
Gilts:
BTPs:
JGBs:
Remember when these were "going to 5%"?
Aussie 3's:
Aussie 10's:
Anyhow, here are the results:
US 2's:
These models have front end bonds tripping short before getting Yellened.
US 10's:
US Bonds:
In this case, the signal from the ECB sell of was exacerbated by the roll.
Remember when these were "going to 5%"?
7 comments
Click here for commentsDame Janet had a Spring picnic out on the edge of the woods. She invited a lot of punters. Many of them have been careless. They have been drinking and many of them have left a lot of PB&J sandwiches laying around. Nothing to worry about, though.
ReplyThe MM comment-o-meter reading ZERO at this moment. VIX at 13.50 this afternoon, but rising slightly ahead of tomorrow's NFP. Crude oil remains soft in light of overwhelming evidence of storage at saturation levels world-wide, but everyone is long.
May UUP calls, IWM and TLT puts are extraordinarily cheap. Interesting... but of course, the bears are asleep, still hibernating. It's safe to continue the equity bacchanal, to gorge on low quality assets and carry trades. What could possibly go wrong?
Indeed LB, what could go wrong?
ReplyI notice that positioning on BTPs looks quite stretched, while italian banks are getting hammered again. Back in February such dynamic was followed by a nice sell off in BTPs .... Ready for another round?
I finally reduced equity weightings in our portfolios to 85% of benchmarks in the last couple of days and moved to a slight overweight in USD through cash (even though I must admit that I fear a sub 100k reading in NFPs, simply because a 200k+ monthly reading in a quarter where GDP growth is looking below 1% annualised just does not add up).
NFP has detached from reality, AL, b/c of all the part-time jobs. Nobody expects a strong number in ISM, NFP, hours worked or hourly pay tomorrow, which means.... markets are quite vulnerable to upside surprises in US data here and going forward.
ReplyYTD First Quarter Top Winners:
ReplyGold & Silver +45%
Metals +35%
LatAm +20%
Utilities +15%
Telecom +10%
YTD First Quarter Top Losers:
Biotech/Pharma -20%
China -10%
Financials -10%
Health Care -10%
Will the second quarter basically be a repeat performance?
LB, in what way is the market vulnerable to good data? As MM has explained there is now a free USD call thanks to yellen. I hate to be mickey momentum and pile into the risk-on camp, but Yellen dismissed the dots and embraced the market's expectations of rates with 0 ambiguity in the last week. Yellen may no longer be offering a put on equity markets, but she is offering a put on global financial conditions, and as those ease, the bear case for equities goes away. I'm by no means in the bull camp as I think corporate profits are going to continue to be lackluster, but Yellen has eviscerated the the tail scenario. I think the trade is short 2m or 3m VIX futures, short SPUZ to get the roll down of the curve in a world of limited spx upside and limited downside (and a very steep VIX curve). I also continue to like gold as the best way to play a weaker dollar. There is no use fighting oversupply issues in other commodities/commodity currencies or trying to figure out who is going to be the winner in the kuroda/mario/yellen devaluation fight.
Replyif NFP actually comes in to the strong side (even assume a beat on ahe and participation rate), do front eurodollars even budge? serious question.
Replyto get the rolls right, I think you should look at roll-adjusted time series. It's pretty easy in Bloomberg. Type CDEF => generic rolls and then select Price: "relative to expiration" for example. The current price will match the actual price then, but Bloomberg will adjust all the earlier prices by the rolls.
Reply