| Bond trading in rare technical conditions |
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| Sean Craig, senior bond trader at NCB takes us through the highs and lows of a recent day. |
6.30am Wake up groggy and twisted. The marital bed is severely overcrowded after Harry (18 months, ear-infection) has been followed in by Stephen (4). Why do infants insist on sleeping at right angles to their parents? Quick shower and bowl of Frosties and I hit the road for 6.50.
7.00am Once in the dealing-room, I give the futures markets a quick glance but slavishly observe my early ‘no trade’ rule. Conditions are too thin at this hour and info-gathering must take precedence. I chat to my two London-based futures-brokers, who are in since around 6.30. As well as trading futures and bonds, I also run our Irish Government bond book. NCB are one of six official market-makers. I spend a few minutes tweaking our electronic price feeds for these Irish bonds, to ensure we are pricing the yield-curve correctly.
7.40am Morning-meeting for the NCB bond desk. We sit down with chief economist Dermot O’Brien to assess the day ahead and, critically, affirm the house-view that the ECB will not cut rates at today’s 12.45 fortnightly meeting .
7.55am I also don a salesman’s hat with some of our retail accounts. This helps give me an insight into what end-users are actually thinking. I ring a few of these guys and consensus in Dublin seems to be drifting away from expecting an ECB cut today. Oddly enough, analyst surveys are holding out a 75 per cent probability, so shorter dated bonds look hugely exposed.
8.15am I do my first futures trade of the day, selling 100 five-year contracts at 106.57. The close last night was poor and breaking 106.67/68 opens up a move below 106.55. What’s more, volume is picking up significantly as the market slides. Luckily the market dips over the next half hour and I close the position out at 106.48. It’s a small profit, making us just o9,000, but it’s nice to start the day on a good note.
8.45am The desk is busy now as retail adjusts positions ahead of the ECB. Mick O’Sullivan, head of bonds and well-known technical analyst sees real risk in the low level of US Treasury yields. He is highlighting a rare combination of a bearish key-week reversal, bearish RSI (Relative Strength Index) divergence plus a trendline reversal. This is proving a big talking-point across the phones. In European bonds a Life-Office switches 3-year Spain into 30-year Germany, while a Bank name dumps out o50 million French 5-year. We also deal a nice line of German mortgage-backed bonds.
10.00am After a lull, a market dip caused by yet another lack-lustre Italian auction triggers more activity. We successfully transact three out of four assorted interests shown to us. NCB can tap into a huge pool of liquidity, as we execute through some twenty different counterparties. With off-the-run securities and really large orders, more discretion is required as price-discovery efforts can spoil an order completely. This wider liquidity gives us an immediate advantage over large ‘one-stop’ European or US Investment Banks.
10.35am We do a biggish trade involving the Irish book and, of course, our own inventory of Irish Government bonds. There’s a bit of hedging with an equivalent French bond and I even manage to unwind some of the position on the IDB (Inter Dealer Broker). Irish turnover is way down since euro-entry but activity continues, predominantly the exchange of paper from domestic to overseas holders, who now hold 55 per cent. For the rest of the morning, the market goes quiet, waiting around for the ECB. I have no positions of note, just in case...
12.45pm ECB… no change. Shorter maturities sell off, long end steady. Our clients, like me, do nothing and want to wait for 1.30 press-conference. My bias is to buy (the market’s down a lot in recent days) for a strategic hold. But, as I say to a client who enquires via Bloomberg, I’ll turn nimble seller if Wim Duisenberg fails to deliver any soothing words. Sandwich arrives in for lunch.
1.30pm ‘I hear but I do not listen’. No, Mrs Craig hasn’t rung in for a quick nag. Mr Euro is on the wires and he’s putting the boot in. Whooping and hooting with colleagues, I amateurishly miss the first big dip in markets. I take time out to lambaste my futures-broker for picking up the phone 1/10 second too slow. Bad miss but I decide not to chase these levels lower. I do, however, put on a strategic yield-curve flattening trade in futures for our market-making book.
2.10pm We see a couple of sellers and the market’s generally weak-looking. But the yield curve is taking the strain and longer maturities appear to be perking up a bit, while the euro hangs in well. My other futures broker reads my mind and phones up suggesting a counter-intuitive squeeze up in prices. I oblige, purchasing 100 ten-year contracts at 108.30, which we turf out at 108.38 almost immediately. Nice trade, but those contrary punts can leave the mind-set a little confused going forward. Our clients have gone quiet, suggesting a strong preference for lower official interest- rates!!
3.45pm I’m tired but I don’t know it. The market’s drifted off from where I sold it. Failing to see the good fortune in my last trade I again purchase 100 lots. After all, those equity markets are sliding off ominously. Since the NASDAQ bubble popped, one can construct a correlation test showing upwards of 75 per cent of US bond moves explained by S&P Equity Futures.
4.30pm I write a few lines on the Irish market for our Daily Bond Comment, a popular e-mail product. At this time I also do a round-up of key price-levels and technical indicators for my desk-diary. In particular, I would spend this time examining volume data, RSIs, moving-averages and bollinger-bands.
5.45pm The equity market has bounced and I’m offside on my last trade. I cut out before the close, thereby wiping out one of my two winning ‘day-trades’ from earlier. Strategically, the market’s a sell and that last trade has put me out of sync. At least the book is flat for the morning. Moreover, we’ve transacted some good retail flow and the P&L is fine overall.
6.10pm Feeling tense now, and peeved at blotting my copy-book late on, I head for the pretentiously-named ‘Sano Vitae’ Health Club across the road.
7.00pm Once home, I’m revived by that swim and I manage to forget about markets (this was not always the case to be honest). I’ve even weaned myself off checking NY closes. With the longer evenings, we’re off to Sandymount beach for a stroll. After that, young Steveo agrees to 4 bed-time stories as I wearily conclude the final trade of the day |
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| Article appeared in the May 2001 issue.
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