Friday, January 9th 2009
We’re mostly thinking about buying the rumor and selling the fact, at the moment. That would have us looking weaker than expected data, a pop in the market (with the curve flattening) and better levels to sell in some way shape or form. Selling 2s vs Shatz – good. Setting up in a steepening curve trade from flatter levels, say 2s/10s between 140-150bps – good, too. Donno. We’ve said OUR piece and will defer to the far bigger brains ‘out there’ at the moment and we’ve offered quite a bit on the attachment today, which should hold you over through the weekend! One of the more interesting write-ups at the moment is the group over at ML looking to sell (get short) MBS. Sound crazy? Maybe. They also thought Fed should be buying $500bil before the Fed made that call. When these guys talk we tend to read/listen. TGIF. Best, Saul/Steve
Here’s an excerpt from our thoughts on the PDF:
Buy the rumor, sell the fact, or so the saying goes. While it’s hard for us to condone selling or being SHORT at the moment, given all the news ‘out there’ this week, we’re certainly operating under one and only one principle here – trying to generate a bit of alpha. This in mind, it feels as though much of the low hanging fruit has been picked and Barrons will be more right than NOT, at least in the short-term. This said, we can only ‘hope’ for a shockingly ‘weak’ NFP and spike HIGHER in Treasury prices so as to get some better entry levels into more bearish US rate trades. Things we’ve talked about here in this space all week long. On the top of that list was to be selling 2s vs Shatz. That trade was done nearer -95bps’ish and is currently -74bps’ish. We’ll keep trying to trade this range and only fear NOT being in or having enough on as core position. The next way we’d approach being bearish (or bullish for that matter) is to have a look at the curve. This in mind, we thought an UPdated look at 2s/10s might be helpful.
Finally, given the Fed’s aggressive start to purchase of MBS this week – bought about $10bil in 3days (which is about $141mil per hour!) we continue to scratch our heads and see if there’s some parts of the puzzle we can put together in effort to get some sense of what’s going on out there in the Land Of The Big ‘01s, from a duration point of view.
This in mind the following comment yesterday from blog Across The Curve re belly OUTperformance: “Why has the belly of the Treasury curve performed so well? I think that it is the huge buying in spread product which in one form or another motivates a subsequent Treasury market transaction as a hedge. Buying in mortgages has been huge and swap receiving would be heaviest in the 5 year and 10 year sector t o hedge those transactions.”
For this and MUCH MUCH MORE … click up the full PFD version! TGIF! Saul/Steve