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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Mark Adams who wrote (24168)	10/13/2002 7:15:00 PM
From: energyplay	Read Replies (1) \| Respond to of 74559

Thanks for the link ! How to know when the corporate / T-bond convergence trade starts - The T-bond side is way too big to move early unless you are Fannie Mae. If I was a hedge fund guy, I would open the trade wtih high quality AAA & AA Corporates, so that I am much less likely to get killed if there is a double dip recession or another nasty crisis. One I had good positions and postive carry putting money in my pocket, I wold selectively go down the quality curve, trying to those issues which are not liklely to have problems or might even get up graded for the next few years. So we should expect the top end of quality bonds start to converge before the lower end does. One thing that will help this is there are only about 12-20 Fortune 500 companies wtih an AAA rating, and about 30-40 with AA. Even though these companies have some big bond issues out, this part of the market is much smaller and will be likely to be moved by heavy buying. Looking at the curves at the bond talk site - bondtalk.com The AAA and AA look like they are starting to converge, maybe not because of hedge funds, but just because the risk aversion is subsiding. When the actual shooting starts in Iraq, it is customary for there to be a run to Treasuries, which then subsides in a few weeks. That would be a good time to add more to this trade, right as T-bond prices peak. A more conventional trade would be to buy the bonds of a company and short the stock. This works great for convertble bonds, of course.