GLOBAL INVESTMENT STRATEGY, EXECUTION AND RISK MANAGEMENT FOR INSTITUTIONAL INVESTORS

 

               Overview

 

Italy 15s20s - flattener

French 30s50s - steepener

French 10s15s - steepener

German 7s20s – steepener

 

 

 

The thing about banging your head against a wall, is it's lovely when you stop

 

It's been a super tough few weeks – I feel like I've been fighting the paradigm change. Now am starting top think about the obvious trades that jump on the back of the moves we've seen this yr without giving too much away for following the trend

 

• Equities Bullish in every scenario!!!! – despite disappointing payrolls, equities continue to rally. We think it's time to set some value markers where we start leaning into this one. We are hoping to see truly ridiculous expectations for the path of rates and want the firepower to argue with those. We need to be sure we hedge the directionality though
• CTAs short – Short FI seems to be the growing consensus – doesn't make it wrong but it does make it crowded. CTAs often roll early as they don't like going to delivery – that means front months can richen and back months and/or cash could cheapen – we look how to play that
• Spreads wider – we're thinking about how cheaper outright levels will attract RM buyers of previously unloved segments of the curve – such as 50 yrs
• Bond Curves steep vs Swaps – as Credit and risk-free bond curves out-steepen the Eonia curve, we go looking for value in boundary conditions

 

 

Supply

 

 

 

·         Plus possibly new RFGB 10y, DBR Green 30y and (seems unlikely) BTP 30y tap. I say unlikely just because we have long end schedule already next week, but the sizes announced Monday will give us a better idea of the odds.

·         Note the Italy should be a new 7y (tbc Monday) after the 3/28 was tapped via syndication

 

 

Z-Spreads

 

I'll be honest I got really tired of looking at the markets in terms of yield curve and Z-Spread and running into trades that didn't turn. What's more, even using something like Z-Spread, we seem to still get caught in negative carry trades.

 

Gimme a couple of seconds and I'll try explain what I'm thinking…

Z-spread basically adds a spread to the swap curve to figure out the 'average spread' of a bond's cashflows over its life time. In that way, we think we've factored in coupon and the appropriate rate for all the cash flows. That's true but only to some degree..

Here's the rub…
when we look at these credit issuers, even France or Germany the Z-spread isn't constant over tenor

 

Italian Z-spreads are :

47bps in 5yrs

79bps in 10yrs

&
143bps in 30yrs

 

So really we shouldn't be valuing all the cashflows in a 30yr at the average of 143bps vs OIS

We should value the front cashflows closer to 47bps,
Then

if we do that, the 5 to 10y cashflows need to be valued at even higher spreads than 79bps and so on, so that the whole thing balances out

 

Why? How wrong is it? Does it matter?

If your book feels like a graveyard of poor location and negative carry think about this…

Why is this deficient vs using Z-Spread? We're just adding a spread, right? That's fine, we're just shifting the curve?

 

Well, the real issue comes when the swap curve and the bond curve are different slopes. It's more important when we compare Italy or France vs Eonia or UK Gilt curve vs Sonia. We are assuming that the slope of the swap curve must be the same as that in the bond curve – plus some spread. And you know what? It just ain't so…

So what we might need is a forward Z-Spread curve for the whole tenor range – a set of Z-spreads applicable for every cashflow, not an average from now to a certain point

But just how is wrong is our current analysis ? And how do we fix it?

 

So here's how we went to look at things right now – we draw a graph of the Z-Spreads of Various European Government Bond Curves

 

With an assortment of High and Low coupons in the benchmarks, we're told by the mathematicians that we have fully adjusted for the coupon differences – but in reality only in so far that we have added a z-spread to the curve to make the PV of each bond equal to the market price. But we're making the assumption of a broad shift of the average spread, over the lifetime of a bond gives us a complete picture of the bond's value in the context of other issues

 

If we were to fit a Smooth Curve to these values (kind of removing the generic swap curve shape) and looked at the anomaly values vs this curve, we'd get something like this for the UK Curve

 

But in reality if we use a different Z-Spread for each tenor and cashflow for each bond we are using a much more accurate value of each cashflow in the context of the curve and the value of bonds is different

This is a subtle but very different description of Bond RV

We believe that this is a much better indicator of Rich/Cheap and stops the casual observer falling into the crowded trades. It helps explain some of the more puzzling persistent anomalies– and this is essential in picking RV trades that have long term real value as a tailwind as well as the optical value offered up by simply looking at yields and Z-spreads

 

We want to use this to help the process of issue selection and give the trades the highest chance of reversal

 

So what we might need is a forward Z-Spread curve for the whole tenor range – a set of Z-spreads applicable for every cashflow, not an average from now to a certain point
Luckily this is none other than:

• deriving a smooth zero curve
• PV all the cashflows of each bond at the appropriate rate
• Comparing the Market price to the theoretical (expressed as BP Rich/Cheap)

 

Bond and Swap curves are changing relative shape al lot at the moment – check out oe/rx vs Eonia…

This issue is becoming more significant as the curves change shape at different rates

 

RXAISPO Comdty - OEAISPO Comdty

 

So please forgive us, if we try to find trades that make sense in both spheres of reference. It's just that we seen too many people fighting the intrinsic value of a bond vs its neighbors by relying solely on Z-Spread

 

Fades

Consider relative Forward Rates vs Eonia in the Major European curves…

 

This guides us to our main Fades at the moment

 

 

1.

Italy 15s20s too steep

Despite the curve steepening recently – we think this one keeps flattening – barring an issuance 'blip' – it just looks wrong and as with the ik/rx spead widening – any increase in credit fears could flatten the back end

(P2509[BTPS 3.1 03/01/40 Corp] - P2509[BTPS 2.25 09/01/36 Corp])

P2509 = OIS

 

2.

French 30s50s too flat

(p2509[FRTR 0.5 05/25/72 Govt] - p2509[FRTR 0.75 05/25/52 Govt])*100

 

3.

French 10s15s too flat – there's a very good reason this one has been blown out of the water – we think it keeps going…

(P2509[FRTR 1.25 05/25/36 Corp] - P2509[FRTR 2.5 05/25/30 Corp])

 

4.

German 7s20s too flat – I like this one – its got a bit of tapering in it – as the 20years are high coupon – but to me the high coupons stop being bought when they get rich – but of course – rich isn't when Z-Spread says so – it's when Cash-flow discounting says so – love to run through this one with you

(p2509[DBR 3.25 07/04/42 Govt] - p2509[DBR 0 02/15/30 Govt])

 

 

For choice – given the robust nature of stocks and the nature that rates will be kept on hold for longer – then my conclusion is they go up harder, faster later. So I like the steepeners and they have only just started their move

 

Best

 

Will & James

 

 

 

 

 

 

 

 

 

 

James Rice

 

UK: 14-16 Dowgate Hill, London ec4r 2su

US: 12 East 49^th Street, Suite 10-125, NY, NY, 10017

 

Office:   +44 (0) 203 - 143 - 4178

Mobile:  +44 (0) 754 - 011 - 7705

Email:     James.Rice@AstorRidge.com

Web:       www.AstorRidge.com

 

This marketing was prepared by James Rice, a consultant with Astor Ridge.  It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission's Market Abuse Regulation.  Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail.  The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. 

 

You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 

 

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA):  Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House:  Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC:  CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA):  Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House:  Registration Number OC401796

 

 

BOND UPDATE : AN EXPLOSIVE NON-FARM HAS FORCED SOME AGGRESSIVE NEW YIELD LOWS IDEALLY WE CLOSE THE DAY THERE, FINALLY VINDICATING THE RSI’S. THIS PATH LOWER HAS SO MUCH “TO RUN” ESPECIALLY LOOKING AT THE MONTHLY RSI CHARTS.

SPECIAL MENTION TO THE US 30YR YIELD CHART FAILING SO MANY PROFOUND LEVELS.

GET READY TO PARTY LIKE 1994! THE HISTORICAL-TECHNICAL PICTURE HIGHLIGHTS A SWATHE OF 1994 RSI EXTENSIONS WHICH ARE VERY OBVIOUSLY EXCEPTIONAL!

ESSENTIALLY THESE TECHNICAL DISLOCATIONS ARE HISTORICALLY UNSUSTAINABLE.

US 30YR YIELDS HAVE HIT THE 50 PERIOD MONTHLY MOVING AVERAGE 2.4405 (PAGE 9).

US 10YR YIELD RSI DISLOCATION IS THE MOST SINCE “1994”!

US BOND AND SWAP CURVES CONTINUE TO “SCREAM” FOR A MAJOR FLATTENING GIVEN THE HISTORICAL RSI DISLOCATION. THE OTHER POINTER IS THE 102030 SWAP CURVES CONTINUES TO INDICATE THE 20YR IS “OUT OF LINE” WITH THE WINGS!

 

ASTOR RIDGE : Independent Ideas, Research, Liquidity, Anonymity and Trusted Experience.

 

• UK:         14-16 Dowgate Hill, London EC4R 2SU
• US:          245 Park Ave, 39^th Floor, NY, NY, 10167
• Office:   +44 (0) 203 143 4174
• Mobile:  +44 (0) 7980708683
• Email:     chris.williams@astorridge.com
• Web:       www.AstorRidge.com
•  
• •             I provide our research notification below for your convenience:
• •            
• •             Research Unbundling:
• •            
• •             Astor Ridge does not provide independent research. We have no dedicated or paid strategists, research portals, or research subscriptions. However, you may receive unsolicited marketing communications from our Introducing Brokers from time to time, which may refer to specific trade recommendations. These recommendations are based solely on the opinion of the author, and are not official research recommendations of Astor Ridge. We have considered guidance from ESMA, and any written material from our Introducing Brokers that might fall within the scope of the rules will be provided for free, and made publicly available on our website, to any EU Investment firm that registers for it.
• •            
• •             If you are a MiFID firm and do not agree with our approach, and instead believe that you must pay for written commentary or trade recommendations, then Astor Ridge will accept  payments determined by    you.
• •            
• •            
• •            
• •             I also direct you to our disclaimer on our email footer:
• •             This marketing was prepared by Christopher Williams, a consultant with Astor Ridge.  It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission’s Market Abuse Regulation.  Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail.  The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. 
• •            
• •             You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 
• •            
• •             Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA):  Registration Number 579287
• •             Astor Ridge LLP is Registered in England and Wales with Companies House:  Registration Number OC372185
• •             Astor Ridge NA LLP is a member of FINRA/SIPC:  CRD Number 282626
• •             Astor Ridge NA LLP is a member of the National Futures Association (NFA):  Firm ID Number 0499303
• •             Astor Ridge NA LLP is Registered in England and Wales with Companies House:  Registration Number OC401796
• •            
• •            
• •             If there is anything else you require from us to continue receiving our market communications, or prefer a different medium for access (e.g. publicly available password protected access on the Astor Ridge website), please do let me know.
• •            
• •             Otherwise, if you are more comfortable to deem consent by simply acknowledging receipt of this email, and continuing our trading relationship under our updated terms of business below, without registering your disapproval, we are happy to proceed on that basis.
• •            
• •             Many thanks,
• •            
• •             Chris

 

 

BOND UPDATE : AN EXPLOSIVE NON-FARM HAS FORCED SOME AGGRESSIVE NEW YIELD LOWS IDEALLY WE CLOSE THE DAY THERE, FINALLY VINDICATING THE RSI’S. THIS PATH LOWER HAS SO MUCH “TO RUN” ESPECIALLY LOOKING AT THE MONTHLY RSI CHARTS.

SPECIAL MENTION TO THE US 30YR YIELD CHART FAILING SO MANY PROFOUND LEVELS.

GET READY TO PARTY LIKE 1994! THE HISTORICAL-TECHNICAL PICTURE HIGHLIGHTS A SWATHE OF 1994 RSI EXTENSIONS WHICH ARE VERY OBVIOUSLY EXCEPTIONAL!

ESSENTIALLY THESE TECHNICAL DISLOCATIONS ARE HISTORICALLY UNSUSTAINABLE.

US 30YR YIELDS HAVE HIT THE 50 PERIOD MONTHLY MOVING AVERAGE 2.4405 (PAGE 9).

US 10YR YIELD RSI DISLOCATION IS THE MOST SINCE “1994”!

US BOND AND SWAP CURVES CONTINUE TO “SCREAM” FOR A MAJOR FLATTENING GIVEN THE HISTORICAL RSI DISLOCATION. THE OTHER POINTER IS THE 102030 SWAP CURVES CONTINUES TO INDICATE THE 20YR IS “OUT OF LINE” WITH THE WINGS!

 

ASTOR RIDGE : Independent Ideas, Research, Liquidity, Anonymity and Trusted Experience.

 

• UK:         14-16 Dowgate Hill, London EC4R 2SU
• US:          245 Park Ave, 39^th Floor, NY, NY, 10167
• Office:   +44 (0) 203 143 4174
• Mobile:  +44 (0) 7980708683
• Email:     chris.williams@astorridge.com
• Web:       www.AstorRidge.com
•  
• •             I provide our research notification below for your convenience:
• •            
• •             Research Unbundling:
• •            
• •             Astor Ridge does not provide independent research. We have no dedicated or paid strategists, research portals, or research subscriptions. However, you may receive unsolicited marketing communications from our Introducing Brokers from time to time, which may refer to specific trade recommendations. These recommendations are based solely on the opinion of the author, and are not official research recommendations of Astor Ridge. We have considered guidance from ESMA, and any written material from our Introducing Brokers that might fall within the scope of the rules will be provided for free, and made publicly available on our website, to any EU Investment firm that registers for it.
• •            
• •             If you are a MiFID firm and do not agree with our approach, and instead believe that you must pay for written commentary or trade recommendations, then Astor Ridge will accept  payments determined by    you.
• •            
• •            
• •            
• •             I also direct you to our disclaimer on our email footer:
• •             This marketing was prepared by Christopher Williams, a consultant with Astor Ridge.  It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission’s Market Abuse Regulation.  Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail.  The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. 
• •            
• •             You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 
• •            
• •             Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA):  Registration Number 579287
• •             Astor Ridge LLP is Registered in England and Wales with Companies House:  Registration Number OC372185
• •             Astor Ridge NA LLP is a member of FINRA/SIPC:  CRD Number 282626
• •             Astor Ridge NA LLP is a member of the National Futures Association (NFA):  Firm ID Number 0499303
• •             Astor Ridge NA LLP is Registered in England and Wales with Companies House:  Registration Number OC401796
• •            
• •            
• •             If there is anything else you require from us to continue receiving our market communications, or prefer a different medium for access (e.g. publicly available password protected access on the Astor Ridge website), please do let me know.
• •            
• •             Otherwise, if you are more comfortable to deem consent by simply acknowledging receipt of this email, and continuing our trading relationship under our updated terms of business below, without registering your disapproval, we are happy to proceed on that basis.
• •            
• •             Many thanks,
• •            
• •             Chris

 

 

US BREAKEVENS : BREAKEVENS RSI’S REPLICATE THOSE OF BOND YIELDS I.E. VERY LOFTY AND RARE DISLOCATIONS.

ALL DURATIONS OF CHART HAVE DISLOCATED RSI’S, MANY DATING BACK 18 YEARS.

30YR BREAKEVEN HAVE REJECTED  THEIR MULTI YEAR 76.4% RET 2.3360 FOR 3 MONTHS IN A ROW.

10YR BREAKEVENS ARE TESTING A 150% RET 2.4911.

**ALL 3 DURATIONS OF CHARTS HAVE RSI’S THAT COMPLIMENT EACH OTHER ACROSS THE BREAKEVEN CURVE.**

 

 

ASTOR RIDGE : Independent Ideas, Research, Liquidity, Anonymity and Trusted Experience.

 

• UK:         14-16 Dowgate Hill, London EC4R 2SU
• US:          245 Park Ave, 39^th Floor, NY, NY, 10167
• Office:   +44 (0) 203 143 4174
• Mobile:  +44 (0) 7980708683
• Email:     chris.williams@astorridge.com
• Web:       www.AstorRidge.com
•  
• •             I provide our research notification below for your convenience:
• •            
• •             Research Unbundling:
• •            
• •             Astor Ridge does not provide independent research. We have no dedicated or paid strategists, research portals, or research subscriptions. However, you may receive unsolicited marketing communications from our Introducing Brokers from time to time, which may refer to specific trade recommendations. These recommendations are based solely on the opinion of the author, and are not official research recommendations of Astor Ridge. We have considered guidance from ESMA, and any written material from our Introducing Brokers that might fall within the scope of the rules will be provided for free, and made publicly available on our website, to any EU Investment firm that registers for it.
• •            
• •             If you are a MiFID firm and do not agree with our approach, and instead believe that you must pay for written commentary or trade recommendations, then Astor Ridge will accept  payments determined by    you.
• •            
• •            
• •            
• •             I also direct you to our disclaimer on our email footer:
• •             This marketing was prepared by Christopher Williams, a consultant with Astor Ridge.  It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission’s Market Abuse Regulation.  Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail.  The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. 
• •            
• •             You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 
• •            
• •             Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA):  Registration Number 579287
• •             Astor Ridge LLP is Registered in England and Wales with Companies House:  Registration Number OC372185
• •             Astor Ridge NA LLP is a member of FINRA/SIPC:  CRD Number 282626
• •             Astor Ridge NA LLP is a member of the National Futures Association (NFA):  Firm ID Number 0499303
• •             Astor Ridge NA LLP is Registered in England and Wales with Companies House:  Registration Number OC401796
• •            
• •            
• •             If there is anything else you require from us to continue receiving our market communications, or prefer a different medium for access (e.g. publicly available password protected access on the Astor Ridge website), please do let me know.
• •            
• •             Otherwise, if you are more comfortable to deem consent by simply acknowledging receipt of this email, and continuing our trading relationship under our updated terms of business below, without registering your disapproval, we are happy to proceed on that basis.
• •            
• •             Many thanks,
• •            
• •             Chris

 

 

STOCKS : EQUITIES ARE “TEASING” GIVEN THE NASDAQ IS TEETERING ON ITS 50 DAY MA 13512.862, MANY SINGLE STOCK CONTINUE TO BE HEAVY!

SINGLE STOCKS ARE BEGINNING TO SHOW SIGNS OF FATIGUE, TECHNICALLY-HISTORICALLY WE COULD BE FORMING SOME MAJOR TOPS.

APPLE IS OF MAJOR CONCERN GIVEN IT CLEARLY FLAGGED A TOP 2 MONTHS AND IS CLOSE TO THIS MONTHS LOWS ALREADY! TESLA HAS ALREADY BREACHED LAST MONTHS LOW!

THE SINGLE STOCKS ARE MORE OF A CONCERN AS THERE IS SO MUCH OF A MISREPRESENTATION IN SOME OF THE VALUATIONS.

“THE MOST WIDELY HELD STOCKS AT MUTUAL AND HEDGE FUNDS IN 4Q 2020 WAS MICROSOFT, AMAZON AND FACEBOOK”. ALL OBVIOUSLY VERY OVER EXTENDED.

TESLA, AMAZON AND APPLE ARE WORTH MORE THAN THE FINANCIALS, ENERGYAND METALS SECTORS COMBINED.

I HAVE ADDED BITCOIN GIVEN A POSSIBLE TECHNICAL TOP. THIS COULD BE A KEY TIME FOR THE DAILY CHART TO FAIL ITS 56772.28 50 DAY MOVING AVERAGE.

 

ASTOR RIDGE : Independent Ideas, Research, Liquidity, Anonymity and Trusted Experience.

 

• UK:         14-16 Dowgate Hill, London EC4R 2SU
• US:          245 Park Ave, 39^th Floor, NY, NY, 10167
• Office:   +44 (0) 203 143 4174
• Mobile:  +44 (0) 7980708683
• Email:     chris.williams@astorridge.com
• Web:       www.AstorRidge.com
•  
• •             I provide our research notification below for your convenience:
• •            
• •             Research Unbundling:
• •            
• •             Astor Ridge does not provide independent research. We have no dedicated or paid strategists, research portals, or research subscriptions. However, you may receive unsolicited marketing communications from our Introducing Brokers from time to time, which may refer to specific trade recommendations. These recommendations are based solely on the opinion of the author, and are not official research recommendations of Astor Ridge. We have considered guidance from ESMA, and any written material from our Introducing Brokers that might fall within the scope of the rules will be provided for free, and made publicly available on our website, to any EU Investment firm that registers for it.
• •            
• •             If you are a MiFID firm and do not agree with our approach, and instead believe that you must pay for written commentary or trade recommendations, then Astor Ridge will accept  payments determined by    you.
• •            
• •            
• •            
• •             I also direct you to our disclaimer on our email footer:
• •             This marketing was prepared by Christopher Williams, a consultant with Astor Ridge.  It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission’s Market Abuse Regulation.  Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail.  The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. 
• •            
• •             You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 
• •            
• •             Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA):  Registration Number 579287
• •             Astor Ridge LLP is Registered in England and Wales with Companies House:  Registration Number OC372185
• •             Astor Ridge NA LLP is a member of FINRA/SIPC:  CRD Number 282626
• •             Astor Ridge NA LLP is a member of the National Futures Association (NFA):  Firm ID Number 0499303
• •             Astor Ridge NA LLP is Registered in England and Wales with Companies House:  Registration Number OC401796
• •            
• •            
• •             If there is anything else you require from us to continue receiving our market communications, or prefer a different medium for access (e.g. publicly available password protected access on the Astor Ridge website), please do let me know.
• •            
• •             Otherwise, if you are more comfortable to deem consent by simply acknowledging receipt of this email, and continuing our trading relationship under our updated terms of business below, without registering your disapproval, we are happy to proceed on that basis.
• •            
• •             Many thanks,
• •            
• •             Chris

 

 

BOND UPDATE : “TYRE WARMERS ON”, WE ARE CLOSE TO LEVELS THAT VINDICATE THE STEADFAST RSI DISLOCATIONS, THIS COULD GET VERY MESSY.

A NEW MONTH AND THE LONGTERM RSI’S PERSIST IN CALLING FOR LOWER YIELDS, IDEALLY THE “MOVE” HAPPENS SOON! THERE HAS BEEN LITTLE OR NO DISSIPATION OF THE RSI EXTENSIONS.

SPECIAL MENTION TO THE US 30YR YIELD CHART FAILING SO MANY PROFOUND LEVELS.

GET READY TO PARTY LIKE 1994! THE HISTORICAL-TECHNICAL PICTURE HIGHLIGHTS A SWATHE OF 1994 RSI EXTENSIONS WHICH ARE VERY OBVIOUSLY EXCEPTIONAL!

ESSENTIALLY THESE TECHNICAL DISLOCATIONS ARE HISTORICALLY UNSUSTAINABLE.

US 5YR HAS BREACHED LAST WEEKS YIELD LOW.

US 10YR YIELD RSI DISLOCATION IS THE MOST SINCE “1994”!

US BOND AND SWAP CURVES CONTINUE TO “SCREAM” FOR A MAJOR FLATTENING GIVEN THE HISTORICAL RSI DISLOCATION. THE OTHER POINTER IS THE 102030 SWAP CURVES CONTINUES TO INDICATE THE 20YR IS “OUT OF LINE” WITH THE WINGS!

 

ASTOR RIDGE : Independent Ideas, Research, Liquidity, Anonymity and Trusted Experience.

 

• UK:         14-16 Dowgate Hill, London EC4R 2SU
• US:          245 Park Ave, 39^th Floor, NY, NY, 10167
• Office:   +44 (0) 203 143 4174
• Mobile:  +44 (0) 7980708683
• Email:     chris.williams@astorridge.com
• Web:       www.AstorRidge.com
•  
• •             I provide our research notification below for your convenience:
• •            
• •             Research Unbundling:
• •            
• •             Astor Ridge does not provide independent research. We have no dedicated or paid strategists, research portals, or research subscriptions. However, you may receive unsolicited marketing communications from our Introducing Brokers from time to time, which may refer to specific trade recommendations. These recommendations are based solely on the opinion of the author, and are not official research recommendations of Astor Ridge. We have considered guidance from ESMA, and any written material from our Introducing Brokers that might fall within the scope of the rules will be provided for free, and made publicly available on our website, to any EU Investment firm that registers for it.
• •            
• •             If you are a MiFID firm and do not agree with our approach, and instead believe that you must pay for written commentary or trade recommendations, then Astor Ridge will accept  payments determined by    you.
• •            
• •            
• •            
• •             I also direct you to our disclaimer on our email footer:
• •             This marketing was prepared by Christopher Williams, a consultant with Astor Ridge.  It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission’s Market Abuse Regulation.  Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail.  The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. 
• •            
• •             You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 
• •            
• •             Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA):  Registration Number 579287
• •             Astor Ridge LLP is Registered in England and Wales with Companies House:  Registration Number OC372185
• •             Astor Ridge NA LLP is a member of FINRA/SIPC:  CRD Number 282626
• •             Astor Ridge NA LLP is a member of the National Futures Association (NFA):  Firm ID Number 0499303
• •             Astor Ridge NA LLP is Registered in England and Wales with Companies House:  Registration Number OC401796
• •            
• •            
• •             If there is anything else you require from us to continue receiving our market communications, or prefer a different medium for access (e.g. publicly available password protected access on the Astor Ridge website), please do let me know.
• •            
• •             Otherwise, if you are more comfortable to deem consent by simply acknowledging receipt of this email, and continuing our trading relationship under our updated terms of business below, without registering your disapproval, we are happy to proceed on that basis.
• •            
• •             Many thanks,
• •            
• •             Chris

 

 

STOCKS : EQUITIES AND BITCOIN ARE FORMULATING SO MAJOR LONGTERM TOPS THAT WILL OBVIOUSLY HELP BOND YIELDS FALL.

SINGLE STOCKS ARE BEGINNING TO SHOW SIGNS OF FATIGUE, TECHNICALLY-HISTORICALLY WE COULD BE FORMING SOME MAJOR TOPS.

APPLE IS OF MAJOR CONCERN GIVEN IT CLEARLY FLAGGED A TOP 2 MONTHS AND IS CLOSE TO THIS MONTHS LOWS ALREADY! TESLA HAS ALREADY BREACHED LAST MONTHS LOW!

THE SINGLE STOCKS ARE MORE OF A CONCERN AS THERE IS SO MUCH OF A MISREPRESENTATION IN SOME OF THE VALUATIONS.

"THE MOST WIDELY HELD STOCKS AT MUTUAL AND HEDGE FUNDS IN 4Q 2020 WAS MICROSOFT, AMAZON AND FACEBOOK". ALL OBVIOUSLY VERY OVER EXTENDED.

TESLA, AMAZON AND APPLE ARE WORTH MORE THAN THE FINANCIALS, ENERGYAND METALS SECTORS COMBINED.

I HAVE ADDED BITCOIN GIVEN A POSSIBLE TECHNICAL TOP. THIS COULD BE A KEY TIME FOR THE DAILY CHART TO FAIL ITS 56972.38 50 DAY MOVING AVERAGE.

 

ASTOR RIDGE : Independent Ideas, Research, Liquidity, Anonymity and Trusted Experience.

 

• UK:         14-16 Dowgate Hill, London EC4R 2SU
• US:          245 Park Ave, 39^th Floor, NY, NY, 10167
• Office:   +44 (0) 203 143 4174
• Mobile:  +44 (0) 7980708683
• Email:     chris.williams@astorridge.com
• Web:       www.AstorRidge.com
•  
• •             I provide our research notification below for your convenience:
• •            
• •             Research Unbundling:
• •            
• •             Astor Ridge does not provide independent research. We have no dedicated or paid strategists, research portals, or research subscriptions. However, you may receive unsolicited marketing communications from our Introducing Brokers from time to time, which may refer to specific trade recommendations. These recommendations are based solely on the opinion of the author, and are not official research recommendations of Astor Ridge. We have considered guidance from ESMA, and any written material from our Introducing Brokers that might fall within the scope of the rules will be provided for free, and made publicly available on our website, to any EU Investment firm that registers for it.
• •            
• •             If you are a MiFID firm and do not agree with our approach, and instead believe that you must pay for written commentary or trade recommendations, then Astor Ridge will accept  payments determined by    you.
• •            
• •            
• •            
• •             I also direct you to our disclaimer on our email footer:
• •             This marketing was prepared by Christopher Williams, a consultant with Astor Ridge.  It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission's Market Abuse Regulation.  Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail.  The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. 
• •            
• •             You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 
• •            
• •             Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA):  Registration Number 579287
• •             Astor Ridge LLP is Registered in England and Wales with Companies House:  Registration Number OC372185
• •             Astor Ridge NA LLP is a member of FINRA/SIPC:  CRD Number 282626
• •             Astor Ridge NA LLP is a member of the National Futures Association (NFA):  Firm ID Number 0499303
• •             Astor Ridge NA LLP is Registered in England and Wales with Companies House:  Registration Number OC401796
• •            
• •            
• •             If there is anything else you require from us to continue receiving our market communications, or prefer a different medium for access (e.g. publicly available password protected access on the Astor Ridge website), please do let me know.
• •            
• •             Otherwise, if you are more comfortable to deem consent by simply acknowledging receipt of this email, and continuing our trading relationship under our updated terms of business below, without registering your disapproval, we are happy to proceed on that basis.
• •            
• •             Many thanks,
• •            
• •             Chris

 

 

BOND UPDATE : A NEW MONTH AND THE LONGTERM RSI’S PERSIST IN CALLING FOR LOWER YIELDS, IDEALLY THE “MOVE” HAPPENS THIS MONTH! THERE HAS BEEN LITTLE OR NO DISSIPATION OF THE RSI EXTENSIONS.

SPECIAL MENTION TO THE US 30YR YIELD CHART FAILING SO MANY PROFOUND LEVELS.

GET READY TO PARTY LIKE 1994! THE HISTORICAL-TECHNICAL PICTURE HIGHLIGHTS A SWATHE OF 1994 RSI EXTENSIONS WHICH ARE VERY OBVIOUSLY EXCEPTIONAL!

ESSENTIALLY THESE TECHNICAL DISLOCATIONS ARE HISTORICALLY UNSUSTAINABLE.

US 30YR YIELDS HAVE HIT THE 50 PERIOD MONTHLY MOVING AVERAGE 2.4416 (PAGE 9).

US 10YR YIELD RSI DISLOCATION IS THE MOST SINCE “1994”!

US BOND AND SWAP CURVES CONTINUE TO “SCREAM” FOR A MAJOR FLATTENING GIVEN THE HISTORICAL RSI DISLOCATION. THE OTHER POINTER IS THE 102030 SWAP CURVES CONTINUES TO INDICATE THE 20YR IS “OUT OF LINE” WITH THE WINGS!

 

ASTOR RIDGE : Independent Ideas, Research, Liquidity, Anonymity and Trusted Experience.

 

• UK:         14-16 Dowgate Hill, London EC4R 2SU
• US:          245 Park Ave, 39^th Floor, NY, NY, 10167
• Office:   +44 (0) 203 143 4174
• Mobile:  +44 (0) 7980708683
• Email:     chris.williams@astorridge.com
• Web:       www.AstorRidge.com
•  
• •             I provide our research notification below for your convenience:
• •            
• •             Research Unbundling:
• •            
• •             Astor Ridge does not provide independent research. We have no dedicated or paid strategists, research portals, or research subscriptions. However, you may receive unsolicited marketing communications from our Introducing Brokers from time to time, which may refer to specific trade recommendations. These recommendations are based solely on the opinion of the author, and are not official research recommendations of Astor Ridge. We have considered guidance from ESMA, and any written material from our Introducing Brokers that might fall within the scope of the rules will be provided for free, and made publicly available on our website, to any EU Investment firm that registers for it.
• •            
• •             If you are a MiFID firm and do not agree with our approach, and instead believe that you must pay for written commentary or trade recommendations, then Astor Ridge will accept  payments determined by    you.
• •            
• •            
• •            
• •             I also direct you to our disclaimer on our email footer:
• •             This marketing was prepared by Christopher Williams, a consultant with Astor Ridge.  It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission’s Market Abuse Regulation.  Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail.  The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. 
• •            
• •             You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 
• •            
• •             Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA):  Registration Number 579287
• •             Astor Ridge LLP is Registered in England and Wales with Companies House:  Registration Number OC372185
• •             Astor Ridge NA LLP is a member of FINRA/SIPC:  CRD Number 282626
• •             Astor Ridge NA LLP is a member of the National Futures Association (NFA):  Firm ID Number 0499303
• •             Astor Ridge NA LLP is Registered in England and Wales with Companies House:  Registration Number OC401796
• •            
• •            
• •             If there is anything else you require from us to continue receiving our market communications, or prefer a different medium for access (e.g. publicly available password protected access on the Astor Ridge website), please do let me know.
• •            
• •             Otherwise, if you are more comfortable to deem consent by simply acknowledging receipt of this email, and continuing our trading relationship under our updated terms of business below, without registering your disapproval, we are happy to proceed on that basis.
• •            
• •             Many thanks,
• •            
• •             Chris

 

 

Overview

• On the Street – house views on the street are bearish –

Am on the hunt for parts of the curve that don't reflect a re-growth – so quite simply the shortest toners I can find, where the risk-free rate declines rather than rises

 

• Actually found it quite hard to find forward rate steepeners that didn't relay on crossing the boundary between tradeable, curve representative issue and anomalous bonds

 

1. Long OEM1, Short Dbr Feb25 and Dbr Feb27

I just want to be long the Bobl Contract (Ctd - dbr Feb26). Though I like the back month too the CTD is an old Dbr which I like to accumulate

In RV space the old Dbr Feb25 can only roll cheaper imho and the likewise the old Dbr feb27 should cheapen…

 

History is pretty dull – but that's good – just wait patiently in the weeds and work an order to sell the basis on the two wings @ > +0.3bp with a view to this having its move end of May

 

Entry: -0.25bp
Target: -2bp for mid-June

 

Here's what happened last time
OEZ0 / OEH1 / OEM1
200 * (YIELD[BK306463 Corp] - 0.5 * YIELD[DBR 1 08/15/25 Corp] - 0.5 * YIELD[DBR 0.5 02/15/26 Corp])

March17th just after OEH1 expired, the outgoing CTD reached its richest level

In that case it was an OBL (original Maturity 5y)

We're expecting the same behaviour as short pressure from CTA's is no longer present, that Dbr Feb26 reached their Zenith in Mid-June – see green bit of the graph…

 

 

2. Here's an old favourite of ours – it seems the High coupons rattle from rich to cheap with the Street struggling to contend with the RV as they run from one side of the ship to the other

Sell Dbr 4.25% Jul39

Buy Dbr 0% 35

Buy Dbr 2.5% 46 (UBA CTD)

 

Levels

Current: -14.5bp

Enter: Am actually holding off for -15bp for my first piece

Add: -18bp

I don't use history to establish my entry/exit levels – (we use that to tells us our risk and our probability stats) – but my greed on the levels is based on how the forwards curve looks right now, which is a function of both the absolute level and the slope of the yield curve around these points

 

Rationale

• 35s not a tap bond, serve as an anchor
• 39s – German High coupons are about the only truly rich high coupons in Europe. I recreated the Maths to strip all European bonds down to their cash flows versus the cashflows – you'd be surprised at how wrong Z spread feels as a means for valuing high/Low coupons – or better still for knowing when to hold and when to fold – gimme a holler if you'd like a run through on that
• 46s – nice and liquid yet relatively high coupon – I still expect that when they drop out of the basket, the PEPP will start buying more – they may have been cautious not to disrupt the float while contract CTD. The drop out is Jun/Sep next yr

 

BBG history

 

BBG history on OIS – jut to show it has edge vs the same structure in swaps

 

Bearish Structures

 

In trying to find a bearish structure I wanna find a steep curve that rolls over (flattens) too quickly. If the Fed or Yellen think inflation isn't a problem, then I want to receive forwards that roll from the very top of the curve. Similarly as per Powell's comments last year about the 'average' of inflation being a more precise definition of the target – then I see a Policy Committee prepared to kick the can down the road… let Inflation repair the damage to economy of Covid but ultimately having to respond with hikes later and stronger – so to me that mean forwards should really be upward sloping much further out the curve than we are used to.

 

In the US, a decent representation is the 5y2y which is higher than the 7y3y – this is just an overly informed expectation to rates as a function of supply rather than a probable outcome

In bond space that's buying the 7y vs selling 5y and 10y

 

Trade UST

Receive 7y
Pay 5y and 10y

 

Levels

Enter: +14bp (100% risk here)

Target:  < +8bp

 

2 * GT7 Govt - GT5 Govt - GT10 Govt

 

Here's how US bond specific forwards look

 

 

 

 

 

James Rice

 

UK: 14-16 Dowgate Hill, London ec4r 2su

US: 12 East 49^th Street, Suite 10-125, NY, NY, 10017

 

Office:   +44 (0) 203 - 143 - 4178

Mobile:  +44 (0) 754 - 011 - 7705

Email:     James.Rice@AstorRidge.com

Web:       www.AstorRidge.com

 

This marketing was prepared by James Rice, a consultant with Astor Ridge.  It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission's Market Abuse Regulation.  Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail.  The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. 

 

You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 

 

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA):  Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House:  Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC:  CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA):  Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House:  Registration Number OC401796

 

 

Overview

• On the Street – house views on the street are bearish –

Am on the hunt for parts of the curve that don't reflect a re-growth – so quite simply the shortest toners I can find, where the risk-free rate declines rather than rises

 

• Actually found it quite hard to find forward rate steepeners that didn't relay on crossing the boundary between tradeable, curve representative issue and anomalous bonds

 

1. Long OEM1, Short Dbr Feb25 and Dbr Feb27

I just want to be long the Bobl Contract (Ctd - dbr Feb26). Though I like the back month too the CTD is an old Dbr which I like to accumulate

In RV space the old Dbr Feb25 can only roll cheaper imho and the likewise the old Dbr feb27 should cheapen…

 

History is pretty dull – but that's good – just wait patiently in the weeds and work an order to sell the basis on the two wings @ > +0.3bp with a view to this having its move end of May

 

Entry: -0.25bp
Target: -2bp for mid-June

 

Here's what happened last time
OEZ0 / OEH1 / OEM1
200 * (YIELD[BK306463 Corp] - 0.5 * YIELD[DBR 1 08/15/25 Corp] - 0.5 * YIELD[DBR 0.5 02/15/26 Corp])

March17th just after OEH1 expired, the outgoing CTD reached its richest level

In that case it was an OBL (original Maturity 5y)

We're expecting the same behaviour as short pressure from CTA's is no longer present, that Dbr Feb26 reached their Zenith in Mid-June – see green bit of the graph…

 

 

2. Here's an old favourite of ours – it seems the High coupons rattle from rich to cheap with the Street struggling to contend with the RV as they run from one side of the ship to the other

Sell Dbr 4.25% Jul39

Buy Dbr 0% 35

Buy Dbr 2.5% 46 (UBA CTD)

 

Levels

Current: -14.5bp

Enter: Am actually holding off for -15bp for my first piece

Add: -18bp

I don't use history to establish my entry/exit levels – (we use that to tells us our risk and our probability stats) – but my greed on the levels is based on how the forwards curve looks right now, which is a function of both the absolute level and the slope of the yield curve around these points

 

Rationale

• 35s not a tap bond, serve as an anchor
• 39s – German High coupons are about the only truly rich high coupons in Europe. I recreated the Maths to strip all European bonds down to their cash flows versus the cashflows – you'd be surprised at how wrong Z spread feels as a means for valuing high/Low coupons – or better still for knowing when to hold and when to fold – gimme a holler if you'd like a run through on that
• 46s – nice and liquid yet relatively high coupon – I still expect that when they drop out of the basket, the PEPP will start buying more – they may have been cautious not to disrupt the float while contract CTD. The drop out is Jun/Sep next yr

 

BBG history

 

BBG history on OIS – jut to show it has edge vs the same structure in swaps

 

Bearish Structures

 

In trying to find a bearish structure I wanna find a steep curve that rolls over (flattens) too quickly. If the Fed or Yellen think inflation isn't a problem, then I want to receive forwards that roll from the very top of the curve. Similarly as per Powell's comments last year about the 'average' of inflation being a more precise definition of the target – then I see a Policy Committee prepared to kick the can down the road… let Inflation repair the damage to economy of Covid but ultimately having to respond with hikes later and stronger – so to me that mean forwards should really be upward sloping much further out the curve than we are used to.

 

In the US, a decent representation is the 5y2y which is higher than the 7y3y – this is just an overly informed expectation to rates as a function of supply rather than a probable outcome

In bond space that's buying the 7y vs selling 5y and 10y

 

Trade UST

Receive 7y
Pay 5y and 10y

 

Levels

Enter: +14bp (100% risk here)

Target:  < +8bp

 

2 * GT7 Govt - GT5 Govt - GT10 Govt

 

Here's how US bond specific forwards look

 

 

 

 

 

James Rice

 

UK: 14-16 Dowgate Hill, London ec4r 2su

US: 12 East 49^th Street, Suite 10-125, NY, NY, 10017

 

Office:   +44 (0) 203 - 143 - 4178

Mobile:  +44 (0) 754 - 011 - 7705

Email:     James.Rice@AstorRidge.com

Web:       www.AstorRidge.com

 

This marketing was prepared by James Rice, a consultant with Astor Ridge.  It is not appropriate to characterize this e-mail as independent investment research as referred to in MiFID and that it should be treated as a marketing communication even if it contains a trade recommendation. A history of marketing materials and research reports can be provided upon request in compliance with the European Commission's Market Abuse Regulation.  Astor Ridge takes no proprietary trading risk, has no market making facilities, and has no position in any security we discuss in this e-mail.  The views in this e-mail are those of the author(s) and are subject to change, and Astor Ridge has no obligation to update its opinions or the information in this publication. If this e-mail contains opinions or recommendations, those opinions or recommendations reflect solely and exclusively those of the author, and such opinions were prepared independently of any other interests, including those of Astor Ridge and/or its affiliates. This publication does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the those who receive it. The securities discussed herein may not be suitable for all investors. Astor Ridge recommends that investors independently evaluate each issuer, security or instrument discussed herein, and consult any independent advisors they believe necessary. The value of, and income from, any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. 

 

You should not use or disclose to any other person the contents of this e-mail or its attachments (if any), nor take copies. This e-mail is not a representation or warranty and is not intended nor should it be taken to create any legal relations, contractual or otherwise. This e-mail and any files transmitted with it are confidential, may be legally privileged, and are for the sole use of the intended recipient. Copyright in this e-mail and any accompanying document created by Astor Ridge LLP is owned by Astor Ridge LLP. 

 

Astor Ridge LLP is regulated by the Financial Conduct Authority (FCA):  Registration Number 579287

Astor Ridge LLP is Registered in England and Wales with Companies House:  Registration Number OC372185

Astor Ridge NA LLP is a member of FINRA/SIPC:  CRD Number 282626

Astor Ridge NA LLP is a member of the National Futures Association (NFA):  Firm ID Number 0499303

Astor Ridge NA LLP is Registered in England and Wales with Companies House:  Registration Number OC401796