It has been tough trading & positioning in interest rates in 2014. Anybody telling you otherwise is either lying or very lucky. From the chart above, you can see that U.S. 10-year Treasury note yields have moved from 3.10% to 2.55% in January; and ever since whipped around every 1 – 2 weeks between 2.55% & 2.80% very erratically … Mocking at all bulls & bears in Treasuries.

Now every lay person will say that it then presents a simple ”range trading” strategy of 2.55 – 2.80% for the supposed smart trader to monetise.  Well in real life, it might not be so simple as the prices gap back & forth and the supposed extremities occur during U.S. economic data releases in very short time frames in a blink of an eye more often than not.  As such, you will be lucky to capture at most 50% of these moves. And if you are unlucky, you get stopped out at some of these ”instant algo flash up or crash down” while still building your positions.  And we are talking about ”basis points” here … where making 10 b.p. or 0.10% is like a home run these days! Something that any lay person on the street will not really care about or bother.

During such times, perhaps it is the ”no stops”, ”no leverage” & ”no haste” real money investing approach that works best in the bond markets now.  Essentially replicating a ”long gamma” approach of ”buying low” and ”selling high” … in putting on positions at the 2.55 – 2.80% range with preparations for overshoots at times but not stopping out.

Asianmacro is short June14 10-years Treasury futures late last week (i.e. paid rates & betting on higher yields in the interim).