sgt.red.blue.red

TLT Options: Taking Advantage of Interest Rates

Thanks, ST. Will review.


On Nov 02 09:14 AM Surly Trader wrote:

> <img class="authors_reply" src="static.seekingalpha.co...">
>
>
> Futures are generally the most efficient way to hedge. When you buy
> or sell a leverage ETF they are often using futures as part of their
> investment program. You do not have a perfect hedging vehicle for
> your situation available. Two year treasury futures would be the
> closest match to your 1 year UST exposure (TUZ9). Euro$ futures are
> probably your best way to hedge your prime (typically fed funds +3%).
> Basically you need to figure out how much the value of your loans
> increase against you for every basis point increase in rates, then
> short the appropriate number of Euro$ and two year futures. The problem
> is that you end up with a liquidity issue because the futures are
> mark to market and your loan is not. Plus you technically need to
> hedge each cash flow in the future, so you should be using a string
> of Euro$ futures, but that's probably not practical for you.
>
> On the flip side, if your loans are very small then it might make
> more sense to use ETF's such as the barclays short treasury (SHV)
> or 1-3YR treasury bond (SHY)

TLT Options: Taking Advantage of Interest Rates

I’ve got a couple of commercial real estate loans. Both are adjustable interest rate loans. I elected to go with adjustable rate loans for several reasons; 1) where we were in the interest rate/business cycle when I put the loans in place, 2) in that the spreads over the underlying indices, in the case of the Treasury adjusted loans, were the same spread no matter the maturity of the underlying index ), and, as such, 3) most of the time during the interest rate cycle there is a positive yield curve, not a negative one, tipped the scales in favor of the adjustable.

I have 2 loans;

The first loan adjusts annually with one year U.S Treasury (adjusted for constant maturity) index. Index available on H.15, in IBD or WSJ (Tuesday). 1 year UST + 2.625%. So every year, this adjusts.

The second loan adjusts with prime (prime + zero) as change in prime changes (instantaneous).

I would like to know BEST way to hedge against rate increases, $ for $, for each of these loans (short side ETF’s, options, LEAP’s, futures. etc.). In that they are not large loans, the scalability of the hedge (frictional cost) must be considered.

I don’t have any real fear on these things jumping, as I am in the money on both loans now. However, if I can find the optimal “hedging” instrument (e.g. a 3x short ETF), it would be money in the bank.

Lessons on a Busted Move in Bonds

If you're looking for a short term trade on TLT, it might be coming soon. But the real time to buy TLT is when the stock market is peaking, like, say June, 2007, when, nobody in his right mind would (sic) would want to be sacrificing 'upside' for something like 5.25+ % yield.

PIMCO's Bill Gross Sees a Bleak Future

I think in June early July 2007 on CNBC Bill said we are bear market bond managers now (I believe he was referring to the long down trend of Treasuries) and lo, a few months later, bond prices rallied. So he was bearish, but wrong then.


On May 31 01:41 PM Michael Young wrote:

> Excellent thread. I always wonder if Bill Gross is a little more
> pessimistic than he could/should be. Has he ever been bearish on
> bonds?

Bond ETFs: Are Treasury Bonds Entering a Downtrend?

I did the PCy Emerging Markets Sovereign debt, HYG U.S. Corprate High Yield and PFF Preferred fund in roughly equal position in April. Average blended yield is 6-7 percent. The PFF and HYG move with the stock market. PCy moves in its own orbit, while dollar hedged, it moves against the dollar.