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I'm curious why Mike and others have chosen ZN over other instruments?
Is there an advantage to it or does it move well? Is it less manipulated than the ES?
thanks.
For me it has nothing to do with it being slower than the ES. It's a completely different market, and I feel it has much more follow through on the types of moves that I look for and like to take. In other words, I feel it fits my trading style better than the ES.
@ TradingOnVolume, I feel that the underlying logical assumptions being made in your question could be analogous to asking: why would you use a hammer in your tool box? You should pick up the hammer because that's what the specific job and situation calls for.
Maybe another job calls for a sledge hammer, or maybe it calls for a chisel, but surely having all three leaves you better off and more versatile for the job instead of just having the one tool in the box.
I strongly believe that every trader and investor should be paying attention to how the yield curve is changing, because of the big money (pension funds, insurance companies, large macro funds) are all making portfolio adjustments based upon changing 2, 5, 10, 30 year changes in yield, so everyone else needs to be paying attention to them as well. For example, if yields are going up, what does that mean to junk bonds and the companies that now have a higher cost of capital? How does that trickle down into equity prices when earnings are squeezed with a higher cost of capital? How does that affect REITS that may or may not be less attractive?
As such, even if a trader doesn't directly trade the ZN, I think a good trader should always have one eye on the 10 year prices.
That said if you were to say I could only have one tool in the tool chest, why would I choose the ZN over other tools:
-Lots of liquidity, I can throw size into the market without slippage
-It can be a slower moving market compared to Gold or Oil, making it easy to trade for those with slower mouse clicking fingers
-It's a bit more precise of an instrument compared to say ZB because of the half tick size
-At the moment with US Dollar strength and the instrument being USD denominated, it's like an extra bonus every time you close out a trade (assuming your bills are being paid in Euro, Aussie dollars, etc).
I've always traded ZB/ZN/ZF (and their old-school cousins -- US/TY/FV), and as MacroNinja states, they all have excellent liquidity...and their movement/range is adequate to excellent for short term trading.
Recently, I've been noticing how "deep" the retracements have been -- where stops are run, and prior swing highs and lows are being taken out by 1 tick to clear the nesting stops --> it's reminding me of the behavior/culture from many years ago...
I never thought (from the past) that I would see bonds trading this high (over 160 closing to 170), and price moved 10 handles (from 154 to 164) in basically 2 weeks...
ZN is more of a true representation of the supply/demand of Treasuries worldwide on that day. ZB is more of a niche product, because of the long duration, lower supply, lower volume attributes. Any institutions can muscle around the ZB with relative ease, but they can't do that with ZN. ZN is definitely much more liquid, but for retail traders, ZB liquidity is plenty. For fund managers and investment banks, ZN's better liquidity probably favors that product.
