I wanted to make a trade on shorting the 10yr Japanese Bond..
Similar to this topic: http://www.wallstreetoasis.com/forums/how-to-short-a-corporate-bond#new
BUT, I couldn't find a viable option. I looked on bloomberg at Powershares DB Japenese 10 year inverse ETN, (equity I believe) but the stock didn't move much at all. Its 52 week range was within a dollar..
Could you please enlighten how I would go about doing this?
I think you're a retail investor - so I'd say stick to an unlevered etf.
For arguments sake however;
Because it's a govvie pretty simple - you'd use futures. I'd advise you to consider what hedging ratio you'd want on the FX exposure, however.
Furthermore, a naked short on anything is unadvisable, especially if you don't know how to implement the trade in the first place, and especially considering landscape of this market, as going short futures will lever you up. Instead I'd argue you do a spread play.
Thanks! I meant as a retail investor, so using the inverse levered 3x etf.. I didn't see that stock move much.. why is that? there were some pretty big swings with the yen gov bonds..
Moves were less than $1 for entire year for the stock. I'm looking at powershares inverse floater Japanese 10 yr. Please tell me if I'm looking in the wrong place, or im misreading on bloomberg or if theres another better stock which creates my view
You should read the prospectus on 3x ETFs.
Flesh out your view a bit more and I can brainstorm some ideas - what exactly is your thesis?
You think yield is going to rise despite another round of QE coming?
Inverse ETFS, especially leveraged ones have a massive path-dependency problem, so unless your big move is going to happen in the short-term I'd advise against it.
Good advice above. Path dependency issues arise because inverse ETFs only track daily movements, which can result in a very different compounded outcome even if your long term view is correct.
Futures are your only practical option. You can open a retail account at a brokerage that allows futures and trade JGB minis: http://www.ose.or.jp/e/derivative/miniJGBfutures which have ~$100k notional value per contract. If that's too much leverage compared to your investable assets then quite frankly you have no business speculating in global macro, let alone trying to put on the "Widowmaker" http://www.businessinsider.com/hedge-funds-feeling-confident-about-the-…
If you have a more general, short-term view on the Japanese economy and are size-constrained, you could trade cash JPY through any FX broker - might be a better learning experience for you as long as you don't kill yourself with leverage. Actually that would be a good learning experience too.
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Long Nikkei != short JGB Short JPY != short JGB
However, the two above might be pretty decent ways to get a payoff in the scenarios that you expect your short JGB trade to deliver. A potential direct way of trading it is to be able to trade the JGB futures (CTD is a 7y bond), as mentioned by another poster above. Before doing this you might want to consider that a) this is, in fact, a widow-maker trade that has defeated a lot of western HF "heroes"; b) this might come as a shock to you, but being long JGB is one of the highest Sharpe ratio trades out there; and, related to the previous point, c) don't underestimate the power of carry.
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if u really want to do this trade open a futures account with a place like InteractiveBbrokers and just sell JGB futures. Do not buy any inverse ETFs...I have not looked into the specific ones listed above but generally these levered ETFs have nasty features that do not make them good buy and hold products. Be forewarned that this trade has been a graveyard of macro traders for about the last decade!
Came across a 'portfolio manager' that had his clients invested in a 3x ETF as a long term investment. Suffice it to say his clients were not to happy with the result.
zeroblued, that trade is called the widowmaker.
thanks guys!! appreciate all the info, very educational. went the cautious route and decided not to make a move on this trade.
any of you trade options and see reasonable success with it?
Yep.
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