The trend that got away?

How exhausting. At this point, the Euro Crisis has suffered more twists than a poorly written telenovela featuring Ricky Martin, and we’re about to give up tracking it. Eurozone meltdown- once thought to be fantasy fiction from a distant twilight zone- is now a definitive possibility, with German Chancellor Angela Merkel’s party voting to allow a “voluntary” exit from the Euro (hint, hint, nudge, nudge, Greece…) and the ECB basically telling Italy to clean up their own mess.  Of course, just give it another 15 minutes and those headlines probably won’t be accurate anymore…

The whole soap opera has fueled quite a few days of risk on/risk off trading, but the biggest move in these markets has been that of Italian and Spanish bonds (with their yields climbing higher and higher/prices lower).  Italian Euro BTP futures have fallen 16% since hitting a 2011 high back in May.

Seems like just the type of down move a systematic multi-market managed futures program would want to be involved in, doesn’t it? Problem is, we don’t know of any managed futures portfolios boasting that exotic of a bond portfolio.  Spanish bonds used to be traded by some CTAs back in the day, but demand for their bond futures decimated upon switching to the Euro, with only 6 contracts of 10 year Spanish Bond futures traded in the past three months. That’s not doable for even the smallest of CTAs, much less a manager who might need to put on hundreds of contracts.  As for Italian bond futures, it is much of the same story, with low volume and illiquid conditions… though in the past ten days, volume for Italian 10 year futures has jumped 112%…

One other issue, the trend hasn’t been smooth at all, with the spikes down followed by reversions to the moving average, before heading lower once again – as can be seen in the chart below.

Disclaimer: Past performance is not necessarily indicative of future results.

So, while you may be sitting there wishing you were short these bonds (yields higher), be careful what you wish for. The liquidity and volume is a non-starter, and even if you were in, you would likely have been stopped out more times than not.  But if the Euro does come apart, one has to wonder if we’ll see a return in volume for the individual country bonds (Italian, Spanish, the French Notiononnel – anyone remember that one?). Wouldn’t bet against it at this point…

One comment

  1. The funny thing is that the Italian Bond Market is the 3rd largest in the world, larger than Germany’s and much bigger than other markets with liquid futures contracts like Australian Bonds.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.