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Non-Tech : Bill Wexler's Trading Cabana
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To: RockyBalboa who wrote (5461)5/12/2009 8:22:05 AM
From: RockyBalboa  Read Replies (3) of 6370
 
Increasing my interest bet today; by shorting Libor futures (at 98.50 = 1.5%) There are two angles for this bet. First, an unexpected rate hike could remove some pressure from the spread but would likely impact Libor a little bit, that it rises. Second, any hiccup in the financial system will inevitably feed back into the ted spread. Third the immense capital needs, rollovers and brisk issues will pressure rates upward.

The 2010 maturities offer more degrees of freedom as compared to the one-shot 2009 bets (where arguably not much will happen unless the $ goes thermonuclear). And by mid 2010 (April or latest June) it should be clear where the economy is heading.

First target is around 97.40 or so, but confirmation only comes when rates cross 2%.

I could also bet on the long bond but the long bond is way ahead yield wise and prone to fed manipulation and auction results. I learnt that in March when the fed bought it up to 128 sending my positions into the red when in fact selling was the standing order. We hit 120 subsequently.

Fact is that the Libor does neither price in an inflationary development nor any further disruption in the financial system.

I have to keep in mind the relation to the dollar rate. Loose dollars, low rates, tight dollars, high rates. I´m glad I haven´t tried this bet in tight dollar times.
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