Shorting Global Bonds

Published on
August 1st, 2018
13 minutes

Shorting Global Bonds

Trade Ideas ·
Featuring Peter Boockvar

Published on: August 1st, 2018 • Duration: 13 minutes

Peter Boockvar, chief investment officer at Bleakley Advisory Group and editor of The Boock Report, has a plan for betting against European and Japanese sovereign bonds. He presents the catalysts, and lays out the trade, in this interview with Real Vision’s Alex Rosenberg. Filmed on July 30, 2018.


  • JW
    Jason W.
    10 February 2019 @ 14:19
    Can anyone recommend some good books on bonds and bond trading?
  • MS
    Michael S.
    1 August 2018 @ 18:11
    This misses all the carry and roll costs, as usual. When you short a bond you're long cash. When a cash rate is negative (as it is in Europe), you can have a negative carry trade even when bond yields are low. In swaps land it's called pay/pay (your receive leg is negative, so you pay twice). I'm not saying this won't work, but it's not the case that you can just sit and wait and what's the worst that can happen with low yields. The worst that can happen is you get carried out. On BNDX, it was <53 at the end of 2016 with the German 10-yr at 17 bps and JGBs at 4 bps. Today German yields are 0.5% and Japan 12 bps, and even after the recent correction it's $54.50 and annualized at 2.2%.
    • KS
      Karen S.
      1 August 2018 @ 22:05
      welp. i wish i read this before buying my puts
    • EF
      Eric F.
      2 August 2018 @ 18:41
      Buying puts wouldn't be directly impacted by the above would it? Surely only direct shorting would have those costs...
    • GL
      G L.
      4 August 2018 @ 14:40
      Yes, agreed. And this is why more investors are not shorting at the moment with this apparent no brainer of a trade idea. Furthermore, the speaker assumes the CBs will just blindly tighten irrespective of fallout in markets like robots - this is a major flaw in the assumptions. The CBs got to this very position because they were trying to contain market fallout. Balance sheet inflation is more or less an irreversible process. Just because balance sheets inflate by X, doesn't mean that when it is done it will deflate by X. They will re-inflate at the slightest hint that markets fall to the point where it creates contagion and hits business confidence. The stakes are much higher now. I think the inflation theme is really overplayed as well - especially in Europe. On the Riksbank: they may or may not raise before the ECB, but largely that's priced in and is not really a game changer as they were one of the first to go negative and will not really outpace the ECB in the slope of future rate hikes as the resultant stronger SEKEUR kronor will hit exporters - and Sweden cannot afford that at a time of global trade tension.
    • GL
      G L.
      4 August 2018 @ 14:44
      *higher SEKEUR will hit exporters. Good interview, nevertheless.
    • MS
      Michael S.
      9 August 2018 @ 15:59
      Eric options are priced off of forward prices, so your Dec 54 put that's 1.2% OTM spot is actually 1.7% OTMF. Forward prices embedded in the option price is how you wind up "paying" this cost in options as well as in delta-one. No free lunch.
  • AC
    Andrew C.
    2 August 2018 @ 12:59
    Improving yields in Europe and Japan: does this mean Banks should become more profitable? They might be a better way to play this trade idea.
    • JA
      John A.
      3 August 2018 @ 03:13
      I’ve never understood the idea of banks making more profit with higher interest rates. To my understanding, banks make money on the spread between short and long-term interest rates. Short rates are what they pay depositors, and long rates are what they earn through lending (x10, due to fractional reserves). When the yield curve is flat, they earn zero, and when the yield curve inverts, the actually lose money (x10), for every dollar lent. This explains why the inverted yield curve leads to recession, since banks stop lending, since they dislike losing money. The ECB and BOJ think that’s ok for us Plebes, though. I’ve always wondered at the general thought that banks profit from higher interest rates. I don’t think that they do. The crew that watches RealVision is sharper than most, so if anyone can correct my ignorance, I’d appreciate it.
    • ww
      will w.
      3 August 2018 @ 15:07
      @ John A, I think you explained why banks do profit from (some) higher interest rates - higher LONGER-term rates. If ppl are saying that banks profit more from higher SHORT-term rates, i agree w/ you that that doesn't make sense.
  • PD
    Paul D.
    1 August 2018 @ 14:00
    Splendid timing!
  • KS
    Karen S.
    1 August 2018 @ 13:06
    US10 at 3%...nice