Any short-end rates traders around?
Starting a new thread at Martinghoul's suggestion...
Would anyone be able to give us a primer on the short-end/money market instruments like OIS, Eurodollar futures, FRA(?), and more that I'm missing? More specifically, which specific rates (LIBOR, FF) do these instruments "imply" or "price in", and how do traders use them to predict central bank policy moves and think about market expectations surrounding these moves? What is the "quick and dirty" way that traders (or HF PMs) use/think about these instruments?
I'm not a rates trader but have always thought this topic would be very interesting and useful to understand even for other products.
Thanks
I am not sure this is a right place for a primer. I might be able to dig up some old papers that might cover some of the above, as it would be a pretty tedious endeavour otherwise. Once you read the papers, I can probably help if there are any specific questions.
BTW, I am not a short-term trader. Those guys are all in jail or on their way there. Life of a short end trader, solitary, poor, nasty, brutish, and short. Well, maybe not poor :).
Right, try this on for size: http://sharesend.com/zt3ntx50 http://sharesend.com/ypn9azjo http://sharesend.com/czbr0w0p
Have a look and, in case you have specific questions, I should be able to help...
sweetness, thanks a bunch for the 2 pdfs!
A monster of a book but it's fantastic: http://www.amazon.com/Stigums-Money-Market-Marcia-Stigum/dp/0071448454
lol too big - 1200 pages textbook style.., any other recommendations?
For the quick and dirty this might help: http://www.amazon.com/Trading-STIR-Futures-Introduction-Short-Term/dp/1… For some Eurodollar pricing: http://www.amazon.com/Eurodollar-Futures-Handbook-McGraw-Hill-Investmen…
As far as what instruments price in what rates, you should be able to find that online pretty easily (CME website for instance).
Thank you - the CS one was very nice
I just got through this recently. Truly awesome overview of how the different pieces link together. Money markets are THE backbone of the financial system, despite their less-than-glorious reputation these days...
Btw whalesquid123, the space has changed a great deal in the past 6 years. Having the interbank market freeze up and central banks run ZIRP for 5 years will do that. EURIBOR isn't really the relevant rate for most banks in Europe for instance and EONIA has become far more important.
My role is broader but I do trade short-end rates every day. Not gonna do your homework of surveying the products but you can ask me specific questions
Thank you all, will try to take a look at some of the materials this weekend. btw I am on another trading desk so this is not homework; i just enjoy learning about different macro products/instruments. figure the knowledge will come in handy somewhere down the road even if it doesn't yield an immediate edge right now.
Like goodbread said, bear in mind that many papers and books are very outdated. Basically all the ones pre-crisis. Think about it when you read them. I'm happy to answer more specific questions (if I can).
Recently started working in research for MMF desk. I'm pretty new to the whole thing, but am pretty sure (at my fund anyways) that we don't use anything nearly as exotic or risky as those you mentioned.
However, maybe I am misinterpreting your classification of money market.
The difference probably lies in the purpose of the instruments. A money market fund will mostly invest in bank or commercial paper, GSE pools and munis. Corps do that too but also have hedging needs which require FRAs, eurodollar derivatives and the like. Banks will make a market in all those things but a lot of the products MMFs invest in are marketed and distributed by the banks and thinly traded while the derivatives used for hedging purposes are typically very deep and liquid markets.
Thanks, but what do you mean by "Corps"? We also trade in corporate paper, corporate asset backed and repos. I'm supposed to start doing research on corporate credits (however, am being told I'll be working on some FIGs for awhile, not amused), and the most technical stuff we do is look at credit metrics, liquidity (average BS bs), and determine our recommended holding periods; e.g. Honda CP, 136 days or whatever (still learning the ropes).
Can I get these papers too. I think the link has expired/not working. If Martinghoul could resend them, I'd really appreciate it. Thanks!
To further clarify, our MMF trade under 2a-7 and maintain certain liquidity and performance regulations. Had to read the rule and main purpose to hold a $1.0000 NAV or around there with certain adjustments being implemented in the near future which I won't get into (you can read that boring shit yourself).
Random question: why did 30y swap spreads turn negative in 4q08, if the swap spread is an implicit measure of bank credit risk? 30y treasury yields plunged in 4q08 which means the swap spreads must have fallen even more.
Also 3m LIBOR spiked during that time, whereas the 30y swap rates (which settle off LIBOR?) fell. What explains this flattening of the swap curve?
For the 30y spreads, it was, in fact, a combination of things. Some of it was related to the PRDC stuff, as Jimbo mentioned, but there was a whole variety of factors (incl the pricing in of some sort of sovereign credit risk premium). In the end, it's really a matter of the equilibrium price, given supply/demand. The mkt just decided that owning 30y UST at the LIBOR minus wasn't worth the various risks involved. To be fair, 30y spreads have recovered quite a bit, but that's because the dynamic has changed once again and there are some new factors.
The flattening of the curve can be explained in simple mechanical terms by the impact of the FF/LIBOR basis widening sharply. Purely as a matter of shorter-dated term rates being more sensitive to LIBOR fixings.
"Random question: why did 30y swap spreads turn negative in 4q08, if the swap spread is an implicit measure of bank credit risk? 30y treasury yields plunged in 4q08 which means the swap spreads must have fallen even more."
liquidity, and exotic hedging flows amongst other reasons. Also not clear a 30yr tsy is a lower risk trade. Swap spread has been negative for over 4.5 yrs
"Also 3m LIBOR spiked during that time, whereas the 30y swap rates (which settle off LIBOR?) fell. What explains this flattening of the swap curve?"
Massive demand for short term funding.
Hi Martin i am also very interested in those pdf of yours on the Money Markets..... i dont hav eenough banan points to send you a PM.. i am going to post randomly here to collect those though.. Apologies everyone, i will make sure i will delete these random posts later
Crap, I don't remember what exactly they were... Let me try to dig them up and re-post.
.
also interested, thanks Martin
Can someone who actually downloaded them when the links were still live pls tell me the titles (unless you're feeling generous and wanna repost them yourself)? Will save me a lot of time...
I think these were the pdfs that you posted last time:
http://sharesend.com/6mw35mcb http://sharesend.com/8gx11a6h
thanks guys!! brilliant stuff
Thx for your help, monkeyspells...
The Eurodollar Futures and Options Handbook by Galen Gerghardt (spelling?) is kind of the bible of the US front-end which i read back in the day...if u understand that you can easily apply to STIR contracts globally.
Name's Burghardt, Galen Burghardt :)...
Indeed, pretty much anything by him is a bible, although some of it is naturally dated (doesn't diminish the quality)
Advice for Trading Assistant on short end desk (Originally Posted: 09/20/2010)
Hey all. I am about to start as a trading assistant in a bank on the desk dealing with the short end of the yield curve (i think 0-2yr) covering the Euro area. I want to get stuck into this job and was wondering what you guys think THE things to know about before going there were.
I am talking about things like......specific Excel skills, good sources of news, some good explanations of what drives the short end markets (at the moment i read most of the Bloomberg website everyday and get it
Basically anything you wished people had told you before you started, anything you would tell your junior guys to read up on and get used to, anything that REALLY ANNOYS YOU when your new junior noob guys dont know.
thanks for all and any replies, I have got a huge amount out of reading this forum and hopefully will know enough to contribute one day!
This isnt specific for rates as I have never traded those but the one thing that helped me when i started as a grad was knowing excel/vba really well. Nothing particular, just be able to do things quickly and efficiently. Being the only guy on a desk that is extremely proficient with VBA is a valuable position.
In terms of actual trading, you will learn most of it on the job so wouldn't stress about that, just make sure that when something is taught you learn it. This isn't college where a 90 is a good grade, 100% is expected every time and anything below can cost money.
Getting into a routine with following the markets is good as it makes it more time efficient and you can spot things easier, as opposed to just randomly looking at data points.
Awesome, I have some VBA am getting better ...I am working through a book I have. What sort of things using VBA are good to know...its hard to know if i am prepared on that front without seeing the sort of arrangements of data I am gonna get. I can do basic macros and chain up simple subs to do repetitive tasks....which bits of VBA were killer for you when you started?
thanks for the response man, when is your website gonna have articles up?
i'm short end rates trader, and the one single most important thing i can't stress enough, is that people like you. Specifically, don't be an arse who disagree with what the trader say even if you think she/he is wrong, just swallow and think about it. Don't try to be hot shot - if you are given chance to trade (clearing t/n balances for example) I see kids so eager to just 'trade' that they hit whatever price just so they can 'trade'. that's big no-no.
expectation on you is not low, it's negligible. They got you there just to do shiit work, don't come in thinking you will make PnL. don't ask for it..
oh and don't ask for extra monitors... nothing worse than trading assistant asking for 4-6 monitors. you only need 2.
good luck!!!
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