I've always been interested in trading Treasury spreads, but it's difficult to find information. There's a few threads on this forum with scattered information, but they still leave lots of holes. So I'm going to create this thread so that I can better track what I have learned. Yup, we're discovering all your spread trade secrets, deal with it. I'm looking at this as sort of a journal, but one where anybody doing things with spreads participates. All of this with the end goal of putting on successful spread trades.

So here I will post

• Learning resources
• Tools
• Broker information
• Actual trades

I'm going to start out with a trade. The Federal Reserve has put out a plan to reduce their balance sheet. The net effect on the yield curve should be just like selling 10-year notes.

Watch Bill Gross talk about this on CNBC:
https://www.cnbc.com/2017/08/02/fed-balance-sheet-reduction-almost-always-ends-in-recession.html

We also saw some changes in the spreads the past two days that seems to confirm my theory. While all treasuries have been up the past few days, ZN has been held back by the spreads.

I don't want to deal with the shorter end of the curve, and I want a spread trade that involves the 10 year because I think that's the future that will be affected the most. So for this trade I'm choosing to short the NOB. As of yet I have no way of actually putting this trade on, so we're just going to track it by hand. I'm basing the price on where we found balance today since it would be easy to get filled there.

Sell ZN x 3: 126'020
Buy ZB x 1: 152'05

Next I'm going to figure out what I actually need to put a spread trade on. So first I'm looking at margin requirements.

Based on this page at the CME the credit for trading Treasury spreads is 75%:

Inters / Intex / Supers for Performance Bonds | Margins

This page explains how to calculate margins:
Spread Calculation Example

So
ZN Margin per contract currently is $1150, and ZB is $3000.

Margin rate per leg:
$1150 * 3 = $3450
$3000 * 1 = $3000

Take the smaller value and multiply by the percent credit:
$3000 * .75 = 2250.

Subtract from the more expensive leg
$3450 - $2250 =

$1200

To keep track of my spread trade I'm using a spreadsheet. I don't know why I posted earlier 152 for entry as that price wasn't available on August 2nd. I must have meant 154'05. Since then we went up and down, and are basically right where we were. So with that in mind the overall trade is -$62 at the moment.

If we take where it was before things fell on Friday we were down -93. So even with all that crazy movement in bonds, spread has not moved all that much!

A bunch of reading material:

Index of /~css318a/handouts/Fixed_Income

Small update. The position moved against me, but did not hit my stop loss. Right now we're sitting at +$62. I'll close it and wait for the next contract if it doesn't move before the end of the month.

Recently I've been watching the 10 year December vs September spread(short September long December) I've come to the conclusion that a an equal short position in September 10 year treasury futures vs a Long position in December 10 year treasury futures, will yield roughly 3-5 ticks per day. It has a tendency to start drawing down sporadically in the first few hours, but eventually during the session gives the opportunity to secure a +3 tick gain. I was just randomly comparing the tick moves in various swings for the September 10 year treasury contract compared to the December 10 year treasury futures contract. And happen to stumble across this one. The price swings taking place on the December 10 year futures contract are a fraction larger on average than that of the September 10 year futures contract. What tipped me off was the unusual large volume of trading taking place in the December contracts. Anyway on average the price swings are anywhere from 3-5% larger than the near term contract. So I reasoned that going long the forward contract would lock in this discrepancy between the two markets.

TWDsje 

I've always been interested in trading Treasury spreads, but it's difficult to find information. There's a few threads on this forum with scattered information, but they still leave lots of holes. So I'm going to create this thread so that I can better track what I have learned. Yup, we're discovering all your spread trade secrets, deal with it. I'm looking at this as sort of a journal, but one where anybody doing things with spreads participates. All of this with the end goal of putting on successful spread trades. So here I will post Learning resources Tools Broker information Actual trades

I've spent a few hours back testing various scenarios of calendar spreads across a variety of futures contracts today (ES,CL,GC,ZS,HG,ZN) and have come across a recurring trade that seems to pay out with a high degree of probability. (Each one of those contracts paid out a minimum of 15 ticks somewhere between an entry on July 1st and today) The spread position I simulated with the market replay function was a 2 contract long position 2 months forward paired with a 2 contract short in the current month. I have a few photos I took of the PnL screen as examples of the profitability of this spread. And it seems to be working in various markets. CL really amazed me as both positions were net positive for a while. Gold was probably the the most profitable though.

The best part of today's FOMC press conference. Yellen gives master class on the yield curve.