Curve based trading strategies...Suppose you are looking at the yield curve, what type of trading strategies we can do?I am trying to think of a laundry list of common trading strategies that people usually trade the curve ...

buy low sell high

PCA analysis and butterfly

QuoteOriginally posted by: mitbuy low sell highBuy high, sell even higher.

QuoteOriginally posted by: EndOfTheWorldPCA analysis and butterflyCould you elaborate more on this?

There are a number of ways to trade the yield curve...PCA analysis is one to get at the relative mispricings between bonds. Another common set of trades done by institutions include carry trades which aim to maximize the rolldown+carry from the position. Spreads and butterflies can be set up that maintain carry but try to lower the volatility in the trade. Worked on IB rates desk for a range of years. I just finished writing a book on the rates market from a trading perspective including common trades done by institutions and ways to empirically anaylze the rates market (not just yield curve but swap spreads, conditional trades etc)... this helps!

QuoteOriginally posted by: secondmomentThere are a number of ways to trade the yield curve...PCA analysis is one to get at the relative mispricings between bonds. Another common set of trades done by institutions include carry trades which aim to maximize the rolldown+carry from the position. Spreads and butterflies can be set up that maintain carry but try to lower the volatility in the trade. Worked on IB rates desk for a range of years. I just finished writing a book on the rates market from a trading perspective including common trades done by institutions and ways to empirically anaylze the rates market (not just yield curve but swap spreads, conditional trades etc)... this helps!Looks really cool! Do you cover corporate bonds trading strategies? Thank you!

Thanks!Yes I cover corporate bond trading on general level, i.e. how spread trades are set up and what particular views they take. I also cover municipals and mortgages, esp mortgage hedging and their gamma. Its focus is the liquid rates space from Treasuries to swaps to other fixed income products with significant trading volumes.

You could also take a step back from the quant space and instead just agnostically hit the historical curve data with some good old fashioned data mining tools - eg seeing how well neural nets, support vector machines, gaussian processes, nearest neighbour searches, linear combinations etc hold up at anticipating future changes at each tenor and across tenors.

secondmoment, I just ordered your book after seeing some pretty good reviews. Tell your kids dinner is on me tonight

haha many thanks hlbeckley. I hope it is useful for you.as far as dinner, i wont advise anyone to write books for the money . maybe if you bought 5 copies, i could get a dinner out of it hah