The Week Ahead

15 Aug

As promised on Friday, I had a few items that I wanted to revisit for the coming week.One particular trade is the 30Y swap spread and USDJPY.With the recent strength of the USD vs. the JPY, I previously mentioned that we may begin to see the same phenomenon that occurred during the financial crisis in which a stronger USD means that people will begin to buy the 30Y swap (typically pay a fixed rate, rcv floating rate) and choose to have the rcv leg denominated in Yen (also sometimes mentioned with a type of structure called a PRDN). The mechanics of PRDN and currency decisions driving swap ideas is a bit beyond the scope of this post, although the inquisitive reader can find plenty of trade ideas from your local salestrader, and some academic papers written on the topic.

Here’s some of the more recent materials I’ve written about this type of trade:

http://www.scribd.com/doc/34941047/USDJPY-and-30Y-Swap-Spreads (Scribd Document on USDJPY and 30Y Swap Spreads, July 2010)

Swap Spreads Chartbook

Yield Correlation Matrix

Upcoming Treasury Auctions For The Week Ahead

Nothing really notable here with the exception of a couple bill auctions. 8/16 (Monday) the 13 & 26 week bills will be auctioned, followed by the 4 wk bill on Tuesday (8/17)

The calendar really heats up the following week, however:

8/23

30Y TIPS Auction (Reopening)

13 & 26 week bills

8/24

2Y Note

4 wk. bill

8/25

5Y Note

8/26

7Y Note

With the conclusion of the 7Y note, there is no more substantial issuance with the exception of bill auctions for the remainder of the month. However, September kicks off with a 10Y TIPS reopening and a 3/10/30 auction, with 10 and 30 being a reopening.

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