Please note, in order to sharpen the image below, simply click on it and it will resize. In order to get back to the text, click page back to return.The trades depicted here were done as block trades which make analysis difficult in terms of what the motivations of the instigator of the trade were. The block trades do not occur in the open outcry pits, but rather are essentially pre-arranged trades between a buyer and a seller, the price of the contracts are agreed to and the trade is posted. What we do know are the levels of the trade and we can make some inferences as noted in the illustrations below. What we do know is that the trade shown here would favor the seller of the 10yr. note as 10yr. yields have risen relative to the 2yr. note since the trade was put on. However do note that pit traders felt that the instigator of the trade may well have been buying the 10yr. note vs. selling the 2yr, which would mean he is down on the trade.
Looking at the math on the P&L (profit and loss position) as of last Thursdays settlement the loss on being long the 10yr. note at a price of 123"22 would be 15tics. The trade on Wednesday involved 5,000 10yr. note contracts so that would be 75,000 tics @ $31.25/ tic comes to $2,343,756.00. On the 2yr. side; the gain involved in being short the 2yr. note at a price of 10824 would be 3 -1/4 tics. The trade was ratio'd 1.82- 2yr. notes to 1- 10yr. note so the trade involved 9,130 2yr. note contracts so the gain is 29,672.5 tics @ $62.50/tic ( 2yr. note contract has a $200,000.00 notional value vs. the 10yr. which has $100,000.00 notional value so the tics are worth twice as much.) For more on contract specifications go to www.cmegroup.com. The dollar amount gain as of Thursdays settlement is $1,854,531.25, putting the net position (again for the party that bought 10's and sold 2's) at a net debit of $489,224.75. As shown above the trade was done again as a block on Thursday the 16th., which involved 5,478 10yr. note contracts at a price of 12318.5 and 9,790 2yr. note contracts at a price of 10822.2. After doing the same math as above these levels result in a net debit (loss) of $1,032,875.00. Again we are assuming (perhaps incorrectly) that the instigator of the trade was buying 10's and selling 2's. Looking at the differential clock in the above diagram again over the recent range it might be prudent to expect 10yr. yields to indeed rise relative to 2yr. notes, which would move the dials counter clockwise on the differential clock and the 10yr. clock at a faster rate than the 2yr. clock. This is indeed been what has happened since these large block trades were posted on Wednesday and Thursday of last week. To keep an eye on the yield curve as well as volatility and other derivative trading flows go to www.accutic.netand sign up for the alerts.
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