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Folks:
I tried to post this Wednesday around noon, but my phone lines have been out.
Hopefully, it is still timely.
We have been talking about spread positions and one that is particularly useful
in volatile situations like this is the T-ED futures spread [Ted spread]. This
spread was a very popular spread until the early 1990's, but has really been an
orphan child until this year. People buy T-Bill futures and sell eurodollar
futures as a spread when they are concerned about credit issues and country
risk. I recommended people look at yield curve steepening trades late last week
and again on Monday, and in some ways, this is the ultimate steepening trade.
This trade is today's version of the period in the depression when people paid
the Swiss government and the US government to hold their money! Yes, we've had
negative interest rates.
Like all spreads, don't just jump into the trade. Look at a chart and be certain
the level of the trade entry makes some sense. As of this afternoon [Thursday],
I haven't gotten data yet to see where the TED spread is at, but eyeballing the
prices of Dec T-Bill futures [ended up 16] and Dec euros [ended down 4], there
were lots of these types of spreads being put on. This spread is one of many
that younger traders may not have seen first hand, and so many may overlook it.
Best,
Tim Morge
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