Understanding using treasury futures for leverage to implement risk parity

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Topic Author
DonIce
Posts: 103
Joined: Thu Feb 21, 2019 6:44 pm

Re: Understanding using treasury futures for leverage to implement risk parity

Post by DonIce » Wed Mar 13, 2019 6:11 pm

Ok so I decided its time to understand how this will actually work in practice.

So I bought one futures contract for a 10 year futures note (/ZNM9) at a limit price of 122'230, which means the notional value is (122+23/32) * 1000 = 122,718.75. This futures contract expires in June, so I'll need to roll it towards the end of May into the next (September) contract. Currently the yield on the 10 year treasury note is 2.621%.

I'll post again in here in May as a bit of a trade log to see how rolling this futures contract forward every quarter goes.
Last edited by DonIce on Wed Mar 13, 2019 6:18 pm, edited 1 time in total.

HEDGEFUNDIE
Posts: 2038
Joined: Sun Oct 22, 2017 2:06 pm

Re: Understanding using treasury futures for leverage to implement risk parity

Post by HEDGEFUNDIE » Wed Mar 13, 2019 6:12 pm

DonIce wrote:
Wed Mar 13, 2019 6:11 pm
Ok so I decided its time to understand how this will actually work in practice.

So I bought one futures contract for a 10 year futures note (/ZNM9) at a limit price of 122'230, which means the notional value is (122+22/32) * 1000 = 122,687.50. This futures contract expires in June, so I'll need to roll it towards the end of May into the next (September) contract. Currently the yield on the 10 year treasury note is 2.621%.

I'll post again in here in May as a bit of a trade log to see how rolling this futures contract forward every quarter goes.
What broker did you use, what and how much are you holding as collateral?

Topic Author
DonIce
Posts: 103
Joined: Thu Feb 21, 2019 6:44 pm

Re: Understanding using treasury futures for leverage to implement risk parity

Post by DonIce » Wed Mar 13, 2019 6:13 pm

HEDGEFUNDIE wrote:
Wed Mar 13, 2019 6:12 pm
What broker did you use, what and how much are you holding as collateral?
I used my account at etrade. The collateral is my equity account there which has about $50k in index ETFs and a bit of cash.

HEDGEFUNDIE
Posts: 2038
Joined: Sun Oct 22, 2017 2:06 pm

Re: Understanding using treasury futures for leverage to implement risk parity

Post by HEDGEFUNDIE » Wed Mar 13, 2019 6:17 pm

DonIce wrote:
Wed Mar 13, 2019 6:13 pm
HEDGEFUNDIE wrote:
Wed Mar 13, 2019 6:12 pm
What broker did you use, what and how much are you holding as collateral?
I used my account at etrade. The collateral is my equity account there which has about $50k in index ETFs and a bit of cash.
Interesting. I didn’t know they allowed equities as collateral.

Let us know how the daily cash settlement works out for you.

Topic Author
DonIce
Posts: 103
Joined: Thu Feb 21, 2019 6:44 pm

Re: Understanding using treasury futures for leverage to implement risk parity

Post by DonIce » Wed Mar 13, 2019 6:30 pm

HEDGEFUNDIE wrote:
Wed Mar 13, 2019 6:17 pm
Interesting. I didn’t know they allowed equities as collateral.

Let us know how the daily cash settlement works out for you.
Will do. I probably know less than one ought to know before trading a futures contract but hopefully this education won't be too expensive.

Beliavsky
Posts: 808
Joined: Sun Jun 29, 2014 10:21 am

Re: Understanding using treasury futures for leverage to implement risk parity

Post by Beliavsky » Wed Mar 13, 2019 8:40 pm

DonIce wrote:
Wed Mar 13, 2019 6:11 pm
Ok so I decided its time to understand how this will actually work in practice.

So I bought one futures contract for a 10 year futures note (/ZNM9) at a limit price of 122'230, which means the notional value is (122+23/32) * 1000 = 122,718.75. This futures contract expires in June, so I'll need to roll it towards the end of May into the next (September) contract. Currently the yield on the 10 year treasury note is 2.621%.

I'll post again in here in May as a bit of a trade log to see how rolling this futures contract forward every quarter goes.
Small suggestion -- when you do roll in May, do it as a single roll trade (sell May buy Sep), since the bid-ask spread for such roll trades (which have low risk compared to outright trades) is probably smaller than for an outright trade. I know that Interactive Brokers allows you to place roll trades.

Topic Author
DonIce
Posts: 103
Joined: Thu Feb 21, 2019 6:44 pm

Re: Understanding using treasury futures for leverage to implement risk parity

Post by DonIce » Wed Mar 13, 2019 8:43 pm

Beliavsky wrote:
Wed Mar 13, 2019 8:40 pm
Small suggestion -- when you do roll in May, do it as a single roll trade (sell May buy Sep), since the bid-ask spread for such roll trades (which have low risk compared to outright trades) is probably smaller than for an outright trade. I know that Interactive Brokers allows you to place roll trades.
Thanks. Yes, I see the roll option as well on etrade.

Topic Author
DonIce
Posts: 103
Joined: Thu Feb 21, 2019 6:44 pm

Re: Understanding using treasury futures for leverage to implement risk parity

Post by DonIce » Fri Mar 15, 2019 1:48 pm

I found this, a nice chart of the 10 year treasury note futures total return index that I linked earlier:

https://www.tradingview.com/chart/SPUST ... al-return/

User avatar
hdas
Posts: 814
Joined: Thu Jun 11, 2015 8:24 am

Re: Understanding using treasury futures for leverage to implement risk parity

Post by hdas » Fri Mar 15, 2019 2:02 pm

DonIce wrote:
Fri Mar 15, 2019 1:48 pm
I found this, a nice chart of the 10 year treasury note futures total return index that I linked earlier:

https://www.tradingview.com/chart/SPUST ... al-return/
Oh Wow...LOL. Wait til ppl compare this to their regular bond fund... :greedy

Good find. They have all sorts of good fut indexes
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

Topic Author
DonIce
Posts: 103
Joined: Thu Feb 21, 2019 6:44 pm

Re: Understanding using treasury futures for leverage to implement risk parity

Post by DonIce » Wed Mar 20, 2019 1:32 pm

Interesting to watch this futures contract as the fed meeting results were released a few minutes ago. It had way more of an impact on the portfolio than the equity holdings. Temptation to lock in a gain by selling on the news and abandon the long term strategy successfully resisted.

Image

Post Reply