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Presenting The New Correlation Regime: Treasury Butterflies And Risk
We have been getting numerous queries lately what the best correlation pattern is for the most recent regime (as in post POMO, now that the Fed is once again actively involved in pricing risk) since all the traditional metrics have collapsed, whether it is FX carry funding (in the form of AUDJPY) or pure cash bonds in the form of the 10 Year. Well, we have an answer courtesy of credit trader. It appears the primary dealers are now funding their stock purchases by selling the Treasury butterfly trade: the 2s10s30s, a trade we discussed extensively over ther weekend, and purchasing ES with the proceeds. Note the almost congruent match between the two on an intraday basis. To be sure, this is an early attempt to gauge where the carry funding comes from in the most recent regime. We will likely want to see 2-3 days of confirmation before we recommend any specific arbitrage opportunities based on this relationship, but we urge our BBerg equipped readers to CIX this relationship and to keep a close eye on it.
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Risk, bitchez
will you (and others) please stop making pointless comments with "bitchez" at the end, its an annoying waste of space.....thanks.
space waste, bitchez
Annoying, Bitchez!
LOL
Piling on a little late Bitchez!
Going full retard bitchez!
I got the math question right! Bitchez!
Calculators, bitchez!
BBerg equipted excel BITCHEZ
LOL......bitchez!
vikram pandit bitchez
ken lewis bitchez?
decaf is just as tasty as the regular brands...biotcheeez
2s10s30s Butterfly, Bitchez
zehctiB
You must have a very tiny screen
Hmm...no, actually, I dont think I will
2 BITCHEZ
10 BITCHEZ
30 BITCHEZ
chartporn, bitchez!
Your ID is very appropriate with the success level of your post!
Perhaps you should read up on the Streisand Effect.
wow, thank you all for your amazing help on this...you all suck and need to find something better to do with your time
Humour aside, you made a reasonable request; however, the response is/was consistent with the site's culture. IMHO, you are not at fault for asking, nor is the community at fault for their (possibly expected, perhaps humorous, maybe juvenile) response.
I hope you don't let the response annoy you to the point where you leave (don't leave). IMHO, it's not a sign of disrespect to you as much as it is an extension of ZeroHedge history and culture.
There are tons of internet cultural references, and "xxxx bitchez" is an important one for this site (perhaps even the *most* important one). Other popular references on the web are the Simpson's reference to, "I for one welcome our new overlords", and the ever-classic, "All your base are belong to us" (in reference to a bad translation for a second-rate game that went viral).
The original reference was short-hand for the laborious argument that fiat currencies were being debased through central banks to the point where their valuation had entered a death spiral, and precious metals (e.g., gold) was a way to insulate against risk as the unit of currency transitioned to a new system. It's a long argument, with a lot of details (on both sides), made popular on ZeroHedge and other sites long before it was a topic in the wider financial community. The argument was shortened to the phrase, "Gold, Bitchez".
That short-hand provided the reader with a very efficient way to understand the point being made by the author (i.e., where the author stood, or what the author wanted to assert). It then became a useful short-hand to identify other pithy points without the (long, technical, detailed, repeated) arguments.
So, IMHO, it's probably best to see it as a short-hand to identify a point being made by the writer, and if you want further clarification, the protocol should be to "reply" with a question or other probing. (I've found people on ZeroHedge to be very well informed, very technically proficient in a number of industries, and quite helpful in responding to honest discourse.)
The phrase has become such a useful short-hand that it is now ingrained into the site culture, and people (like me) commonly use it to browse threads. It's infinitely superior to the, "me, too", but even those posts and the "+1" posts have a LOT of utility (because those help highlight a post that people think should receive wider attention without requiring the reader to merely re-post the same point *again*). They serve to direct attention for other readers, without cluttering the thread with copied points that have already been made in the same thread. Further, over time, they serve to paint a well-rounded picture regarding the beliefs and motivations of names you commonly see (like others, I have many names for which I scan threads to see what they think).
This was a "light" thread (Hey! More correlation to fleece the retail investor!), on a relatively boring day (markets not reflecting reality -- what's new?), so I think you just hit a bunch of people that were bored. (I was pretty bored with the news today.)
So, drink it in as a part of the culture. It's possible you don't like the taste. However, it grows on you (perhaps it is a bit of an acquired taste).
[update], Sorry, forgot to mention, but this thread was started off by trav7777 with:
That was a short comment, but an important one: The point being made was that these correlation trades are LOADED with risk. They might be real at the moment, but they can come-and-go in a FLASH. It wasn't a correlation before, it might be now, but there will come a time (perhaps very soon) when that correlation is gone (and you're SO SCREWED if you traded the correlation).
That's a VERY good point, and entirely reasonable as perhaps the most salient take-away from the original post/article. It provides focus. It was NOT noise.
As an aside, trav7777 happens to be a smart guy, whom I don't know, but he's made a number of very good points in the past. Any of us can disagree on any given issue, but I wouldn't dismiss his post (assertion) without some thought.
Nonetheless, I'm with Let them all fail.
It's wearing very thin now.
DavidC
Problem is, whining is a losing strategy, and will only make things 100 times worse.
Mikla - thanks for taking the time to write this. Huge kudos for making the site today a little bit more friendly and welcoming. An excellent description, well written, and generous.
Community Bitchez.
BBerg, Bitchez.
gold bitchez!
Most fitting Farside depiction bitchez!
SPX to the fucking moon Alice bitchez
Close eye, bitchez!
ZH is bitchin bitchez
I don't think this is it. I could be wrong and I do not know what it is, but this just doesn't seem like it is it.
Puppies come from bitchez!
quit yer bitchin, bitchez !
I flagged the bitchez, but in reality I lol'd (Bitchez).
BTW How are you weighting the yield spread?
Incidently, I've also seen this at least the last week or so...
You bitchez crack me up!
Today was an expensive lesson, thanks for the info Tyler.
Bitchin thread bitchez!
I'm having a hard time setting up the CIX. Could anyone please explain to me how to set up the 2s10s30s index that Tyler has? Very new to Bloomberg, and butterfly trades for that matter!
Thanks in advance..
Let me fix this for you..
type CIX<GO>, click 'create a nex CIX', click on 1)Custom, type '2*USGG10YR - USGG2YR - USGG30YR' into the formula box; type in a ticker and name and then save it. Then type G<GO>, click 'create new chart', click '4)Multiple Security', click 'Next', type your butterfly CIX ticker into #1, type 'ES1 Index' into number 2, click 'Next' and complete the chart creation.
Hey thank you so much! At first had a hard time setting up the formula, had to put index in after the T's.
Really appreciate it. One question I can't really figure out is the 2*, why do you multiply the butterfly?
sorry i forgot to include 'Index'. Multiplying by the 10 year by 2 is a crude attempt to approximate what would be a neutral weight (in reality, there are a million different ways to tilt these weights depending on the curve exposure you're trying to attain).
Nothing really new here. Bond dump ES pump going into options expiration. After Labor day, go long VXX and wait.
How do I get a 2,10,20s on a single line chart? I don't have Bloomberg. Anything similar to this?
I can't believe I read the entire thread of 'bitchez' comments and couldn't come up with anything decent.
The earlier note about this being a risky risk trade seems about right to me. This might be a trade to begin exploring but not to over-lever into until that confirmation stands for longer than a few days.
Back when ZH was showing the AUDJPY as the correlation trade I showed some friends what was really driving stock prices intra-day. They weren't too happy knowing that the stock market trading based upon a seemingly random currency cross - that of course never gets mentioned on any financial news site.
The new cross will be what we just saw- the monthly Fed bond auctions front- runned to juice the basis (and then a consequent conversion to risk) by the big banks trying to boost cash holdings. The FED is going to do whatever is required to keep these bankrupt zombies going. God help us...
God help us indeed if money market mutual funds get thinned out because short-term rates stay absurdly low. Nobody will borrow from two or three gigantic MMMFs. If they refuse to roll your funding, the risk alarm that implies will mean your immediate death.
Surely the people in charge see this !?!
The Fed stands ready to lend to nearly anyone.
Also, why would MMFs refuse to roll funding when they have no other sources of yield. The real risk is that they will all seek out pair trades such as these and everyone *retreats* to risk-free yields with leverage.
Sure the Fed will do it. But I'd to think there will be market left before they exit central planning.
Think about it from the other direction. You are an IB aware that Lehman had a liquidity crisis and then their clearing bank cut ties because of your funding problems.
Then consider if MMMFs get so thinned in ranks that there are only a few of them around to fund you.
If one of those few didn't roll your funding because you were under stress, there would be no market for you. The signal would make everybody but the Fed run from you.
The very thought will make you more and more hesitant to go to MMMFs in the first place.
lol. Same thing happened with I tried to show people. One dick head told me to put it on a thirty day chart and as I was changing it he said "you're about to learn a valuable lesson son." A second later there way a monthly chart, his face was shocked and I looked at him, smiled and asked what the lesson was and all he said was wow.
I laughed, and asked him to please exit my cubical because it was time for me to make some money on this spread. He wanted to watch, I said I had no time to explain and suggested he go back and find read the big stack of analyst documents and financial statements. lol.
After reading this, LMFAO - bitchez!