There's a saying in the rates market: "don't counter-trend trade the front end".
I lost $7 million dollars in minutes by being short $700 million of US 2yr notes when the levees failed during the hurricane Katrina disaster.
Although my bet that the 2y point would be under pressure in the intermediate term turned out to be true, I got carried out by fund flows as folks spazzed out to cut risk by rolling into short duration high quality paper.
To his credit, my boss, who sat across from me, said only: "wouldn't want to be short 2 years." He let me make the call, which I did, and I covered my position. (Ouch.)
My book was up considerably on the year already, but this was a huge hit, and nearing year-end. I dialed back the risk of my portfolio and traded mostly convex instruments (options) for the remainder of the year.
I lost $7 million dollars in minutes by being short $700 million of US 2yr notes when the levees failed during the hurricane Katrina disaster.
Although my bet that the 2y point would be under pressure in the intermediate term turned out to be true, I got carried out by fund flows as folks spazzed out to cut risk by rolling into short duration high quality paper.
To his credit, my boss, who sat across from me, said only: "wouldn't want to be short 2 years." He let me make the call, which I did, and I covered my position. (Ouch.)
My book was up considerably on the year already, but this was a huge hit, and nearing year-end. I dialed back the risk of my portfolio and traded mostly convex instruments (options) for the remainder of the year.