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Spreading + more questions
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Spreading + more questions

  #1 (permalink)
Normal Wizard
Sydney, NSW, Australia
Futures Experience: Intermediate
Platform: NinjaTrader with Jigsaw DOM
Favorite Futures: CL, 6E, ES, Piano
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Spreading + more questions

Ok so firstly, which of the 3 notes (5/10/30) is the most volatile?
Which one leads?
How would one go about spread trading these? (yield curve spreading, so like the 10yr against the 30yr)).
(for spreads) Signals for entries/exits, reasons why one might think the spread will widen or narrow.

Understanding yourself is just as important as understanding markets.

Last edited by TickedOff; August 13th, 2015 at 08:25 PM.
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  #3 (permalink)
Trading Apprentice
Chicago, IL USA
Futures Experience: Intermediate
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I would say 30 yr the most volatile.

Which one leads? That depends. Is there demand in the belly, the long end, short end?


You'll notice the curve tends to bear flatten (ie outrights selling off, short term rates rising more than longer term) into FOMC meetings when there's something hawkish anticipated.

CME has ICS spreads but only a few of them are decent (FYT, NOB, FOL) based on DV01s for each contract.

Widening and narrowing can be a result of perceived term premia, inflation expectations, positioning (mainly leveraged funds), rate cuts/hikes, etc. It can really vary.

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  #4 (permalink)
Trading Apprentice
stamford, ct, USA
Futures Experience: Intermediate
Platform: CME
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trading the curve

One could write a thesis on trading the Treasury Yield curve. It is not simple.

It is important to recognize that the DV01 (dollar value of a basis point) varies by coupon and maturity. If your bet is an interest rate spread, the common approach is to weight the trade by DV01.

There are financing charges in the cash market and the futures spreads will reflect that.

What moves spreads? No simple answer. The Fed, of course, moves the very front end so the general rule is a flattening in a bear market and a steepening in a bull market but that is only true if the Fed is the main driver of the market. And, the further you move out the curve the more spreads are influenced by factors out of the Fed's control.

So, out the curve (ZN, ZB, UB) I suggest that the spreads are as simple as supply/demand. I trade those 3 outright and on spread but only for short term / day-trades. I weight them 3ZN/2ZB/1UB. As of the last couple of weeks the long end of curve has been directional with UB driving the spread.

Hope that helps.

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