Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: mishedlo who wrote (19944)	12/30/2004 5:07:51 PM
From: russwinter	Read Replies (2) of 116555

Well, I will not play for any kind of lower rate environment, would be incompatible with my big picture, even if I felt the Fed were stupid enough to "pause". But here are some trading strategies that bet on credit spreads widening regardless of interest rate direction. The first is the 5 year TAG spread: long 5 yr treasury/short 5 yr agency (in about even amount contracts) It works in two instances: yields fall, credit spread widens, or yields rise, spread widens; cbot.com A variation would be another TAG spread: long 5 year, and short 10 year agency, which would add a yield curve widening, or even long 2 yr/short 5 yr. The other credit spread trade is the 10 year TED spread. cbot.com It's a little harder to grasp, plus it's roughly 5 long 10-year T-note contracts ($100,000 amounts) for each 4 short 10 year swap contracts $100k). I'll check later on the spreads right now on these two trades, or hopefully find a chart. Think we can assume they are very narrow historically in this "risk has been abolished" mentality du jour though?

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