Treasuries Trading
I did an internship in S&T this past summer and accepted a full time offer with the bank. I really enjoyed the Treasuries desk and would like to work there when I start full time.
Since bid/ask spreads are so narrow on UST, does that mean that most of the profit the traders make is from proprietary trades, as opposed to IG corporates where spreads may be 3-5bps?
Just looking for some input from anyone in the know.
Prop trades is probably part of it, but I bet a lot has to do with volume.
The treasury market is one of the most liquid in the world, so bid-ask spreads are always narrow. Most flow desks rake in P&L by spreading off their positions to profit on deviations in the yield curve. In other words, steepener and flattener plays. Nobody wants duration exposure.
Don't steepener and flattener plays have duration exposure built in? Maybe I'm just confused as to what duration exposure is? Elaborate please!
That makes sense, which is why I figured a lot of the profit came from prop positions (curve trades).
If one were to trade Treasuries at a primary dealer for 5+ years, what kind of hedge fund opportunities would be available? What type of funds would hire someone in this position?
Macro
Bump
Spread trading doesn't apply just to prop - flow traders need to hedge duration too.
Although banks are well capitalized and can take a lot of heat on their flow books, they don't want to have outright bets on whether the market goes up or down. Flow trading is about picking up pennies in front of a steamroller - you make profit on the small discrepancies that arise between products. If a client wants to buy X, the BB goes short X to fill them and hedges up almost immediately by buying a future or note with similar duration.
One of the biggest misconceptions about trading is that you have to love risk - trading flow at a BB is almost completely the opposite. Your business model is to fill your clients with as little risk as possible.
What types of hedge funds recruit people who trade Treasuries? Are there a lot of opportunities to move to a hedge fund from this position?
I'm going to summer in a BB rated top at rates. Is there a profitable future in Treasury trading seeing as we are in an rising rates environment and the government is trying to cut down on deficit spending?
similar position as well
although can anyone comment on rates sales? (treasuries)
can do 2 rotations at my bank - and am thinking rates for one and Credit for the other( IG, HG)
The convention is to quote steepeners/flatteners duration-neutral.
You also don't JUST make money from curve plays - you also trade the liquidity give on olds, double olds, other off the runs, invoice spreads, futures and some guys even do swap spreads. Of course, all bets are off if you're the bond trader.
How will the rising rate environment and future reduced deficit spending and resulting Treasury issuance affect the market? Will there still be a lot of opportunities for profit?
You tell us. You're going to be taking your first shot at S&T this summer and I'm sure this will be a good talking point for the desk you're on. Figure out what you think will happen and compare it to what the traders on your desk are thinking.
Personally, I think that treasuries trading will see less volume, seeing as there will be less OTR issuance. However, I think the rates options desk is going to see more activity as firms and funds hedge interest exposure...
I'm only basing this off what I read in the WSJ and seeing as I have not been on a rates desk yet, I was looking for some insight from others who have a little more experience
You have it completely backwards.
When rates finally break in the future, desks will start pulling in money. Increased volatility is generally good for dealers.
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even with lower issuance? isn't a big chunk of the treasury trading money as a primary dealer?
10 year treasuries trading (Originally Posted: 05/02/2012)
Anyone have some good tips on trading 10 year treasury futures? I've been doing pretty good lately but i wanted to gather some more info on trading these products. For example what indicators or strategies do you use?
A lot of spreading goes on between the 10yr and 30yr. Put up a DOM of the two front month contracts together and and stare at them from market open to close. Also, if you stare at the individual contract enough setups will become clear. Money moves markets....
Good Luck Trading!
The treasury yield curve - including all CME treasury futures and eurodollar futures products - is my primary trade.
"Bravo" is advising you towards a steepening/flattening strategy. I gather that you don't have a lot of capital to risk , so I wouldn't advise you touch ZB (the 30-year future). Apart from being very volatile in-and-of itself, the steepness/flatness of the yield curve is extremely directional w/r/t the outrights; this is due to monetary easing policies implemented by the Fed. In other words, you don't reduce much vol spreading off products - for the amount of capital you have, you're probably just as well off trading outrights.
Furthermore, the hedge ratio on ZN to ZB is currently 2:1, and I'd wager you're not willing to do more than 1 ZN contract at a level (HINT: you shouldn't be).
I'd advise you to start with front-end products - ZT is really boring, but ZF should give you enough of a ride.
When you ask about strategies, are you asking about spreads? As far as indicators go, it is more about your views on the economy and macro sentiment. Do you think investors are going reallocate out of safe assets in favor of equities? Do you think the Fed is going to change course and announce an expected increase in interest rates before previously stated as in 2015? How will a hard landing in China affect the PBOC's appetite for US paper? You need to come up with your own opinions and position yourself accordingly.
Most importantly, if you're coming to an online forum asking for directional tips, prepare to lose money.
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