Interest rate research and trading
Could those of you wiser than I (which means almost all of you) shed some light on interest rate research and trading? I’m pretty interested in the group generally and would appreciate any opinions on what they do and, in particular, career flexibility in that group. I’m not just joining a group for its exit opps, but when I think about something like credit trading or research, for example, I can imagine people becoming portfolio managers either externally or for a prop book internally. I don’t hear much about what interest rate traders or strategists do though, and definitely have never heard of an internal global macro prop group.
Thanks!
...Interest rate research and trading means you will eithe be creating research or making markets in government bonds, interest rate swaps, and derivatives thereof. Many former sell-side rates guys become buyside portfolio managers either at hedge funds or prop desks. You will often see them at relative value hedge funds and fairly commonly at macro hedge funds as well. I currently work at a global macro hedge fund and my background is "rates"...because interest rates are such a big part of other markets like FX and equities I think its a good place to start if you want to be in macro, although I would say that if succesful one can make a nice career on the sell-side also. And BTW I have definitely heard of an internal global macro prop group because I used to work for one!
Thanks very much Bondarb. I was going to pm you but thought it would be better if you could share your wisdom with the board. I am wondering what the typical background of someone in a rates research group is. I would not imagine that a PhD or MA in econ is a pre-req, right? i.e. a junior person in the group would not be hopelessly behind the curve. And for a more general inquiry, I always hear about equity and credit portfolio managers, whether internally at a bank or at hedge funds, but, at least I, have rarely heard about macro fund managers outside of the few global macro firms. Do you have any sense of, out of all the AUM in the alternative investment universe (maybe excluding private equity), how much of it is macro-focused, i.e. not focused solely on company or industry-specific research?
Should you have anything you'd prefer to discuss off the board, I would be more than happy to msg/email you as well. And again, thank you for your response.
...hmm global macro as a percent of total AUM is a tuff one. Off the top of my head I dont know but I would say it is one of the larger segements. If you look at a list of the biggest funds there are alot of macro names on there...Brevan Howard, Tudor, Moore, Paulson, Caxton, etc...all these guys are basically macro shops. To be honest there are not aot of strategies that can really take multiple billions of dollars without getting illiquid and since rates and FX are the two most iquid products and those are kind of the bread and butter of macro trading you find alot of big macro shops.
In terms of rate research backgrounds I think they are extremely varied. I have never worked in research but I think they hire everyone from undergrads all the way thru to quant PHDs. However, if your goal is to be a PM on the buyside I would try to get a job trading. I know some research analysts who now work on the buyside at macro funds but i still think trading is the most direct route to managing money. That is a topic on which some might disagree though.
Thanks again Bondarb. Is it same to presume that your background is in rates trading? One reason I would think rates research is a good avenue to portfolio management is that it affords more time to think analytically about rates from a more fundamental perspective than trading, although trading provides market knowledge that I'm sure a research role does not. Or to be less confusing, research provides a bit more of the "why" and trading provides a bit more of the "how." But that is an assumption that could be horribly wrong.
One more question, should you have the time and patience. I believe that credit traders and research analysts work very closely together to the point that a credit research role is a great way to transition either directly into trading or to portfolio management directly. Do rates research analysts get the same close relationship with the traders? If so, I would think research and trading would be more interchangeable, as it appears to be in credit.
Thanks again for your comments. Very very insightful.
...i should be clear that i have never worked on the sell-side so all my opinions on this matter are from the experience of others. However, I work in a global macro group that is run by a guy who previously traded the 10 year note and ran the treaury desk at a dealership and at the hedge fund I worked for previously one of the principals was a former BB salesman and the other came from a sell-side rates trading background. So given those two experiences I am biased to think that trading is a better route to the buyside then research.
More theoretically, I am a person who believes that risk management is much more important to running money and trading then "good ideas" are. To me, good ideas are a dime a dozen, somebody who knows how to manage risk when "the bullets are flying" is the person who really adds value in my opinion. For that reason, I value trading experience over research experience, even if sell-side trading is much different then buy-side trading at least you end up managing risk. Some others might disagree in this opinion.
Also, in research you may get pegged as an "analyst". One of the reasons I have been able to progress is that I have always clearly been on a risk-taking path as opposed to an an analysts path. I have always made it clear that while i will do analysts work when needed i want to run money when its all said and done. That is easier to do from the traders spot then coming from research...
...as an aisde, tonight is a prime WSO posting night for me since i had a few early drinks, and i cant sleep for some reason...i also just lost a bet that federer would win in straight sets which kept me up for awhile...this is why i have been opining on everything from the fed to this topic in big size!
I had Fedex in straight sets too... the first two sets were too easy...
Anyway, from my experience the rates research team did not work particularly close to the traders at my bank from what I could tell... though that's not a representation for everywhere. On the other hand FX research did work closely with the traders, so I dunno maybe it was just that one group.
From what I heard from people on the floor, most people would agree with Bondarb that trading is a better route, due to the risk-taking/risk-managing aspect and having the pulse of the market. It's one thing to come up with ideas, and quite another to be constantly managing positions. (This is not at all downplaying the research teams, they do great jobs most of the time and also fulfill another important role in selling ideas to clients).
Was talking to a guy yesterday who was saying there's quite a logjam in sell-side traders trying to make the move to run money. Thoughts? To be fair, he's never actually worked on the sell-side but recently left a large "name" fund (Soros, Tudor, SAC, Brevan, etc.)
Bondarb, I'm a rates researcher on the prop desk of an investment bank- I think this role suits me more than as a trader in liquid markets, but I would agree a trading background probably gets you to a PM role faster- we're working on algorithmic market making for government bonds and swaps, mostly in C#/C++ (legacy code). My sense is that automated models will capture most of the rates business in the next couple years like it has in FX. Cash bonds will still require people because of the millions of CUSIPs and the major market imperfections...
...i think their is always a logjam of guys trying to move from the sell-side to the buyside, no question about it. Really its never easy to get a job running money at a hedge fund so any way you go the competition is gonna be tuff...
On algo trading in rates...i think there already is alot of algorithmic trading in products that are easier to automate...i trade alot of eurodollar futures and i could absolutely feel the difference in the market when the algo guys basically turned off the black boxes when things got hairy during the crisis...there was much less liquidity. I have no doubt that eventually we will see algo trading of all products. However, I do not see that as a threat to discretionary, non-systematic trading. Both have pluses and minuses and both can exist at the same time just like they do in FX.
Just found this thread and became interested.
Does anybody know what the typical day for a junior person or intern would be in rates trading? What background do these people have? What about the derivatives side?
Thx.
Interest Rate Trading (Originally Posted: 11/10/2010)
I have a friend who is interview for an interest rate desk and needs some prep materials. Already has the WSO and M&I stuff.
Anyone who does it or is interested in it, could you PM me what you read or used to prepare with? Would really appreciate it.
SB's for the help.
PM Bondarb he was/is a rates trader. Also, there was the below book was required reading for an intern on the swaps desk, but it is probably too detailed for interview prep.
http://www.amazon.com/Interest-Swaps-Their-Derivatives-ebook/dp/B002M0H…
How hard would it be to join a Rates Research Team at an advanced stage of career with a “mixed” background and without a MSc from an elite uni?
Also what are the networking strategies? Cold call MDs at the bank? I guess recruiters would not be helpful as they don’t tend to work on these roles while bank’s HR departments are inundated with CVs...
Interest Rate Strategy (Originally Posted: 07/29/2011)
I think I have a strategy that could produce about 20-30% return with a limited amount of risk. Anyone want to take a look at it and give me pointers on what I could possibly be missing? Preferably someone with a little bit of knowledge of emerging markets?
If you can help me out, I'll email you the excel file
Time frame?
A friend of mine formulated a similar, literally risk-less arbitrage strategy based off the USDINR carry + a hedge (this is the part where things get interesting), and although the returns is primarily contingent on leverage, we estimated that it could easily produce about 30% annually with little hassle of 'active hedging'. Drop me an email and perhaps we can discuss our strategies, although judging by your post I suspect we shall be chasing the same fills.
Which EM in particular?
Stuff like arbing EM markets usually does not work because of regulatory restrictions. Often times, you could simply arb FX spot + money markets against forwards, but there are rules that do not allow you to do so. You need to look that up in great detail, what you are allowed/not allowed to do, because if there were risk-less opportunities, they would be gone by now already. Also do not forget basis risks, which many people tend to ignore/not know about.
Forgot one: Depending on your strategy, if you are thinking about shorting bonds, you need to look up the repo rates and if there is any liquidity in the markets. Some bonds could again easily be shorted in one currency, then FX crossy and long bond in another currency, making 100bp risk-free profit, but this doesn't work because the repos rates are so high that eventually, there is no opportunity...
I'm trying to pick up a bit more this stuff. From the textbooks, financial news and Bloomberg I get the basic "product descriptions" of basis trading, repo rates, FX swaps, etc. but how did you get to the point of being able to search for and formulate these type of arb trades
If the answer is work at a macro fund or on a rates/FX desk, that's not really an option for me at this point
double post
I'll take a look
Interest rate strategy? (Originally Posted: 10/02/2013)
I recently heard about groups in BBs called interest rate strategy. Does anyone know what they do and what are the exit opportunities, like hedge funds and stuff? Do they just do research on interest rates and publish them (like eq research analysts) or does their research get used by traders?
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