Any Bond Traders?

[Soultrader 12]

Im looking to learn the bond markets using simple strategies with market profile. James Dalton in his recent webinar held at LBRGROUP, mentioned how mp has its advantages with the 10 year notes and 30 year bonds because it is traded mainly by institutions.

 

I would like to receive some few pointers with the bond markets. Are there internals tools like TICK, TRIN, Prem for this market? I was told it was quite news sensitive. How liquid is the overnight and premarket session? Are there other financial instruments that a trader should follow with the bonds?

 

Thanks

[notouch 10]

The bond markets have massive liquidity so that's seldomly an issue. Bonds move inversely to interest rate expectations so anything that increases the likelihood of rate increases (particularly higher inflation) will lower the price of bonds so there's big volatility around key economic releases like CPI and NFP. There are no internals as such because the underlying is a single instrument rather than an index. The only "internal" is interest rate expectations. The shorter term instruments are more responsive to economic news than longer term instruments. Consider CME Eurodollar for short term interest rates. Also there are bond futures for all countries so you might want to trade the Japanese 10 year bond or the German Bund.

[weiwei 10]

Bond is more trending and when it move it is more gentle then index market.

 

So if you are more of a trend trader, then bond could be a good fit. If you are a counter-trend trader, then you might have tougher time in this market.

 

my 2 cents.

[Guest cooter]

Are there internals tools like TICK, TRIN, Prem for this market?

 

Depends on your definition of "internals".

 

$DJCBTI - this is the Dow Jones CBOT Treasury Index, a weighted representation of the 5, 10 and 30 year contracts.

 

CBOT - Treasury Dow Jones CBOT Treasury Index

 

$TYX.X, $TNX.X and $FVX.X - the 30, 10 and 5 year yields. They move inversely to the respective contracts. These are the quoted yields (with a multiplier of 10) used for interest rate options.

 

Interest Rate Options

 

http://www.cboe.com/LearnCenter/pdf/IRO.pdf

 

 

I was told it was quite news sensitive.

 

You heard correctly. Best to always keep in mind the 8:30am and 10am (EST) economic reports when trading. Use econoday or some other service to give you a list of these.

 

Try http://fidweek.econoday.com/ for a list.

 

How liquid is the overnight and premarket session?

 

Very liquid and deep at all times, including the US overnight and premarket session. How deep? Just look at the DOM (depth of market) after hours - many more contracts than the ES. Slippage (if any) is minimal, with a spread of no more than 1 tick wide.

 

Are there other financial instruments that a trader should follow with the bonds?

 

Sure. Asides from the 10 and 5 Year Treasury Notes, try looking at 30 Day Fed Funds, 1 Month Libor, Eurodollar futures.

 

More info here:

 

CBOT - Fed Funds 30 Day Fed Funds Quotes Open Auction

 

CME LIBOR Futures

 

CME Eurodollar Futures and CME Eurodollar Options

 

Thanks

 

My pleasure.

[brownsfan019 17]

I found bonds too boring. Not that it's a bad thing, but these things can take forever to move sometimes. Huge liquidity is nice, but I have to think there's a correlation between massive liquidity and smaller movements intraday.

[notouch 10]

There's an exciting way and a boring way of trading bonds. The exciting way is to trade around economic numbers. Look at bonds around 0930 EST on NFP Friday and you won't say they're boring to trade. The boring way is to look for the longer term trend. Either way you need to combine auction theory with fundamental analysis. If you don't understand why core CPI coming in at 0.1% rather than 0.2% as expected increased the price of bonds then that's something you have to learn. It's not like stock index futures where there's a spike and then the market ignores the number.

 

It's not enough to get the economic number 10 seconds after release. Use a news squawk to get the release immediately. A good free one is www.NewsStrike.com.

[Nick1984 10]

Bond markets are traded heavily by fund manager who run a geared fund. They constantly trade the bonds so that they can match the bond duration to the duration of their debts.

 

In terms of things that effect bonds, yes interest rate are the number one thing. But also other economic indicators such as the CPI (Consumer price index) and employment figures also have indirect effects. I.e: If employment rises, then income rises, then aggregate demand increases, which means more money floods the economy, which means inflation, which means interest rate rises! etc etc.

 

Longer term bonds due to "convexity" are more strongly effected by changes in discount rates (interest rates) due to the nature of bond prices. Depends as well as whether the bond is a 'zero' or a coupon bond. It's very very rare these days to find 'zero's in the market as they are usually OTC instruments.

 

Credit ratings are also important. For a higher return you want to trade Junk Bonds as the discounts off face are larger due to the poorer credit ratings.

 

If you keep track of S&P and Moody's reports on credit ratings this helps as well as one bad report can send the price of a bond tumbling!

 

Personally I find bond's very boring and there are way to many big players there which is kind of intimidating. As for indicators such as TICK etc i dont think they apply to bonds cause they are not based on any underlying stock index.

 

Hope that little bit helps.

[torero 10]

I think Soul was interested in US Treasuries and Bond futures, not companies bonds. I'm interested in learning about @US myself.

[Soultrader 12]

Thank you for the information guys. I really appreciate it. Been observing the 30year bonds and it sure is slow. It does seem to respect MP levels though.

[sandman 10]

the treasuries react to economic news whereas companies bond also react to companies and industry news on top of treasuries' movements.

[Alex 10]

Does anyone here trade the 3-Month Sterling (Short Sterling) Futures contract on LIFFE? I'm interested to know who the big players are and why they trade it.

 

The standard contract size is £500,000 and the price is based on what the LIBOR rate is predicted to be on the day of settlement. Just like bonds, the price moves inversely to the yield which is 100-x. The minimum tick size is 0.01 which corresponds to a £12.50 change in price.

 

For example, if you were betting the Bank of England was going to surprise the market by raising the base rate, you would take a short postion. You sell at a price of 95.00 (LIBOR 5%) and a few weeks later the BOE raises rates by 25 basis points. The LIBOR rate moves to 5.25% and you buy the contract back making a profit of £312.50.

 

(95.00-94.75)/100*£500,000*3/12 = £312.50

[notouch 10]

I keep my eye on short sterling. It's traded by hedgers and speculators. Hedgers are banks, insurance companies, mutual funds, pension funds and anyone who wants to hedge against interest rate risk. Speculators are hedge funds, investment banks and large traders. You can also trade Gilt which is the equivalent of the US Treasury Bond. Participants are mostly institutional rather than retail.

[Alex 10]

Regarding bond markets in general: Are there any seasonal factors at work? As we draw to the close of Q2 earnings season, will bond markets take on a more bid tone as investors withdraw from stocks and park their money somewhere less risky over the summer period.

[notouch 10]

Rotation from stocks to bonds is always a factor but there are no "no brainer" trades. Who's putting money on the stock market rally to end any time soon? Interest rate expectations is what it all comes down to for bonds.

[bakrob99 11]

Thank you for the information guys. I really appreciate it. Been observing the 30year bonds and it sure is slow. It does seem to respect MP levels though.

 

Soultrader - What strategy have you determined might be effective using Market Profile and US 30 Year Bonds?

[robb 10]

That is a great question. I am also looking to get MP strategies to couple with 30 year bond futures. I have been trading the bonds for awhile now but I am new to market profile. Seems to be a good fit. The 30 year bonds offer a great bang to buck ratio... bonds have been moving 12-30 ticks per day on a trending day at 31.25 per tick per contract...not bad.

I assume the value area strategies should work using VAH, VAL, POC, single prints, etc....can anyone offer ant help?

thanks.

[Soultrader 12]

I think the best trader that can offer you some insight would be alleyb on this topic. You might want to check out his site too at http://www.tradingclinic.com/index0212.php/

[alleyb 10]

where do I start for what can become a very lengthy subject.

Any LIBOR based contract whether Short Sterling, Euribor, EuroDollars, EuroSwiss or 3 month Yen of which there are several genres are primarily the domain of the big banks but as previously posted really just about any type of institution is willing to be involved. This is still despite the electronicmogification of the marketplace still a product where the local (albeit upstairs now) is still a major player The volumes transacted are huge and the capability in the LIBORS to be able to trade the packs (groups of 4 quarterly contracts) to create yield curve and TED spread strategies adds to the appeal. The major influence in options these days is likely the hedge funds.

The purpose of the product is to offer a hedging capabilty against or for a directional move in short term interest rates but of course like any tradeable product the spec are just as likely to be involved as they try to anticipate the Central Bank's next move.

[alleyb 10]

the LIBORS if spread on an inter-market basis mixed in with opposite risk trades in bond markets also offer interesting alternative strategies to trading currencies outright but again this is an area that one could almost write a book on. What I am trying to say is that to their are many different ways to create a currency trade without using the FX

[alleyb 10]

The 30 year or Long Bond or T.Bond has always had a 90% plus MP or Market Profile correlation. The bond markets were in essence the first guys to really take to MP back in the 1980s and I don't know anyone who trades bond markets again whether that be US, EU, UK or Japanese as these are primarily where the main futures markets are who doesn't have a MP chart up all the time.

as for saying that the 30 yr is slow I think that is a matter of being in the eye of the beholder and suggests something about their trading style.

obviously taking different data sets from the Data Warehouse will produce slightly different results. For example taking S&P since inception in 1982 then the daily ATR is 9.44 per day but taking just 2008 then its 30.56. Doing the same excercise in the T.Bonds starting again with inception since 1977 the daily ATR is 24/32 but taking just 2008 then its 33/32 (1-1/32). The Nice thing about Bond markets is the ability to trade the curve postioning 2 year vs 5 year vs 10 year vs 30 yr in the US and Europe where saily volumes are almost obscene.

Note that the T.bond will move from being traded in 1 tic increments 1/32nd to half tics from March 3rd. Likely impact I am sure will be higher volumes as the flipper brigade spin their wheels looking at the 5 minute voodoo chart even more