NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

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caklim00
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NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

Post by caklim00 » Thu Feb 13, 2020 7:29 pm

I'm highly considering creating my own Treasury Future ladder simulating NTSX but with a tilt + Intl equity (not changing my current positions beyond slighty increasing equity).

Here are the margin requirements I'm seeing for the roughly $768,683 in notional exposure (might be slightly off but close enough):
2: 540
5: 700
10: 1150
Ultra 10: 1800
30: 2800
$6990 Total maintenance margin

NTSX would hold about $76,868 (10%) for margin requirements. How much do you think is really necessary? Up to this point for holding 10 year only I've been targeting about 3x margin requirements + holding a bit extra in a ultra short bond etf just in case.

MoneyMarathon
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Re: NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

Post by MoneyMarathon » Thu Feb 13, 2020 7:33 pm

And people ask me why I gladly pay the piper's expense ratio. :wink:

rascott
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Re: NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

Post by rascott » Thu Feb 13, 2020 9:20 pm

I don't think your math is correct..... the $768k would be the 60% bond allocation. So portfolio size would be $1.28m....

90% equity - $1.152m
10% margin cash - $128k

Topic Author
caklim00
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Re: NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

Post by caklim00 » Thu Feb 13, 2020 9:41 pm

rascott wrote:
Thu Feb 13, 2020 9:20 pm
I don't think your math is correct..... the $768k would be the 60% bond allocation. So portfolio size would be $1.28m....

90% equity - $1.152m
10% margin cash - $128k
Yeah, you are right. Now it has me thinking... why in the world would NTSX need that much cash? Is it truely to hedge against the risk that treasury futures and equity both crash at the same time?

MotoTrojan
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Re: NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

Post by MotoTrojan » Thu Feb 13, 2020 9:47 pm

I don’t understand the advantage of spreading across the curve this much. I’d leverage intermediate or long bonds alone or perhaps barbell long and short if I were building my own.

rascott
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Re: NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

Post by rascott » Thu Feb 13, 2020 10:00 pm

caklim00 wrote:
Thu Feb 13, 2020 9:41 pm
rascott wrote:
Thu Feb 13, 2020 9:20 pm
I don't think your math is correct..... the $768k would be the 60% bond allocation. So portfolio size would be $1.28m....

90% equity - $1.152m
10% margin cash - $128k
Yeah, you are right. Now it has me thinking... why in the world would NTSX need that much cash? Is it truely to hedge against the risk that treasury futures and equity both crash at the same time?
No they just don't want anything more than 1.5x effective leverage exposure. They hold that cash in t bills.

YearTrader
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Re: NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

Post by YearTrader » Thu Feb 13, 2020 10:13 pm

MotoTrojan wrote:
Thu Feb 13, 2020 9:47 pm
I don’t understand the advantage of spreading across the curve this much. I’d leverage intermediate or long bonds alone or perhaps barbell long and short if I were building my own.
To avoid bidding on a specific part of the yield curve. It makes more sense for NTSX as they don't care about the additional operation cost and want to cater the taste of different people.

Topic Author
caklim00
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Re: NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

Post by caklim00 » Thu Feb 13, 2020 10:24 pm

YearTrader wrote:
Thu Feb 13, 2020 10:13 pm
MotoTrojan wrote:
Thu Feb 13, 2020 9:47 pm
I don’t understand the advantage of spreading across the curve this much. I’d leverage intermediate or long bonds alone or perhaps barbell long and short if I were building my own.
To avoid bidding on a specific part of the yield curve. It makes more sense for NTSX as they don't care about the additional operation cost and want to cater the taste of different people.
Why does it cost more?

YearTrader
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Joined: Thu Jan 02, 2020 6:46 am

Re: NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

Post by YearTrader » Fri Feb 14, 2020 12:34 am

caklim00 wrote:
Thu Feb 13, 2020 10:24 pm
YearTrader wrote:
Thu Feb 13, 2020 10:13 pm

To avoid bidding on a specific part of the yield curve. It makes more sense for NTSX as they don't care about the additional operation cost and want to cater the taste of different people.
Why does it cost more?
Ah, sorry by operation cost I meant it costs a little time for retail investors. Assuming rebalancing isn't a concern.

MotoTrojan
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Re: NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

Post by MotoTrojan » Fri Feb 14, 2020 7:38 am

YearTrader wrote:
Thu Feb 13, 2020 10:13 pm
MotoTrojan wrote:
Thu Feb 13, 2020 9:47 pm
I don’t understand the advantage of spreading across the curve this much. I’d leverage intermediate or long bonds alone or perhaps barbell long and short if I were building my own.
To avoid bidding on a specific part of the yield curve. It makes more sense for NTSX as they don't care about the additional operation cost and want to cater the taste of different people.
In the long run I just don’t see it mattering enough for a DIY.

Topic Author
caklim00
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Joined: Mon May 26, 2008 10:09 am

Re: NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

Post by caklim00 » Fri Feb 14, 2020 7:59 am

YearTrader wrote:
Fri Feb 14, 2020 12:34 am
caklim00 wrote:
Thu Feb 13, 2020 10:24 pm
YearTrader wrote:
Thu Feb 13, 2020 10:13 pm

To avoid bidding on a specific part of the yield curve. It makes more sense for NTSX as they don't care about the additional operation cost and want to cater the taste of different people.
Why does it cost more?
Ah, sorry by operation cost I meant it costs a little time for retail investors. Assuming rebalancing isn't a concern.
For me I won't be able to rebalance each of the 5 contracts, but rolling 5 contracts over 1 isn't too much additional time considering its only done 4 times a year.

Topic Author
caklim00
Posts: 2043
Joined: Mon May 26, 2008 10:09 am

Re: NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

Post by caklim00 » Fri Feb 14, 2020 4:37 pm

MotoTrojan wrote:
Thu Feb 13, 2020 9:47 pm
I don’t understand the advantage of spreading across the curve this much. I’d leverage intermediate or long bonds alone or perhaps barbell long and short if I were building my own.
Why barbell? I think the idea here is diversification of term risk (at least thats how Wisdomtree explains it). It makes sense to me, best not to put all of my eggs in one bucket. There was another poster that was pushing a split between TYD (3x 7-10 Year) and TMF (3x 20+) because they act differently. This is one reason why I'm considering this ladder strategy.

MotoTrojan
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Joined: Wed Feb 01, 2017 8:39 pm

Re: NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

Post by MotoTrojan » Fri Feb 14, 2020 4:47 pm

caklim00 wrote:
Fri Feb 14, 2020 4:37 pm
MotoTrojan wrote:
Thu Feb 13, 2020 9:47 pm
I don’t understand the advantage of spreading across the curve this much. I’d leverage intermediate or long bonds alone or perhaps barbell long and short if I were building my own.
Why barbell? I think the idea here is diversification of term risk (at least thats how Wisdomtree explains it). It makes sense to me, best not to put all of my eggs in one bucket. There was another poster that was pushing a split between TYD (3x 7-10 Year) and TMF (3x 20+) because they act differently. This is one reason why I'm considering this ladder strategy.
I guess my point is that over the long-term I would expect the variations to balance out, so I would be comfortable holding the most efficient way to get my target duration. For example if EDV's duration was enough, I would just hold that. Or pick one future duration that is easily held.

If you want a bit more diversification intuitively it seemed like holding something from each extreme/end would get you most of the way to a full ladder (intermediate durations should act similarly to the average of the extremes), and is much easier to implement at smaller portfolio sizes.

Topic Author
caklim00
Posts: 2043
Joined: Mon May 26, 2008 10:09 am

Re: NTSX Ladder Simulation (2, 5, 10, Ultra 10, 30)

Post by caklim00 » Fri Feb 14, 2020 5:04 pm

MotoTrojan wrote:
Fri Feb 14, 2020 4:47 pm
caklim00 wrote:
Fri Feb 14, 2020 4:37 pm
MotoTrojan wrote:
Thu Feb 13, 2020 9:47 pm
I don’t understand the advantage of spreading across the curve this much. I’d leverage intermediate or long bonds alone or perhaps barbell long and short if I were building my own.
Why barbell? I think the idea here is diversification of term risk (at least thats how Wisdomtree explains it). It makes sense to me, best not to put all of my eggs in one bucket. There was another poster that was pushing a split between TYD (3x 7-10 Year) and TMF (3x 20+) because they act differently. This is one reason why I'm considering this ladder strategy.
I guess my point is that over the long-term I would expect the variations to balance out, so I would be comfortable holding the most efficient way to get my target duration. For example if EDV's duration was enough, I would just hold that. Or pick one future duration that is easily held.

If you want a bit more diversification intuitively it seemed like holding something from each extreme/end would get you most of the way to a full ladder (intermediate durations should act similarly to the average of the extremes), and is much easier to implement at smaller portfolio sizes.
Gotcha, I was thinking more along the lines of all five and then add another 10, 5, Ultra 10, 2, 30 in that order IF portfolio grows enough. I'm liking the idea of 1/3 in each bucket US, Foreign, Bonds though. I know its not risk parity but I'm not shooting for that.

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