After all these years it still never gets easy. But now a new variety of snake has been thrown into the arena, one even more unpredictable and deadly than the rest.
For example, past years if we had a fairly good notion of relative performance, sovereign credits, we’d do alright. So early May we were pretty buoyant, pretty darn confident when we isolated what we thought would be “surprising” vigor in the UK and what we thought would be a “disappointment” in the US. The simplest way to translate this view was to sell the Gilt 10 yr and own the US note.
So that is what we did, figuring we were pretty sharp hombres, putting the trade on about flat, or 0 spread.
As it turned out, real sector results did cooperate; they still are. However, the trade blew up in our face thanks to Bernanke’s mid-May hint that he may ramp in QE. US debt prices collapsed. Son-of-a-gun. We had looked for something on the order of -20 come July (US -20 bps under UK) not +20!
This added dimension is why many experienced strategists are to be found in their garden, at least for this season.
Robert Craven
For example, past years if we had a fairly good notion of relative performance, sovereign credits, we’d do alright. So early May we were pretty buoyant, pretty darn confident when we isolated what we thought would be “surprising” vigor in the UK and what we thought would be a “disappointment” in the US. The simplest way to translate this view was to sell the Gilt 10 yr and own the US note.
So that is what we did, figuring we were pretty sharp hombres, putting the trade on about flat, or 0 spread.
As it turned out, real sector results did cooperate; they still are. However, the trade blew up in our face thanks to Bernanke’s mid-May hint that he may ramp in QE. US debt prices collapsed. Son-of-a-gun. We had looked for something on the order of -20 come July (US -20 bps under UK) not +20!
This added dimension is why many experienced strategists are to be found in their garden, at least for this season.
Robert Craven
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