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At the beginning of the year, everyone (myself included) expected to see rates push higher and higher. The US 10 year yield started at around 3%, and currently sits at 2.5%... 90% of the market participants were expecting to see 3.5%, not 2.5! And here lies the problem, consensus trades have been failing miserably this year, and frankly don't look goof for the rest of the year.
The consensus trades that nearly everyone believed in going in to 2014 were as follows, as they thought at the time:
1.) Sell bonds - With the Fed tapering, and the US growing well, interest are surely going to rise in the not too distant future. As such, we will have higher yields on Government bonds across the curve.

2.) Buy Equities - The so called "great rotation", sell bonds and buy equity. The US is growing, the world is recovering, buy stocks. Corporate default rates are historically low, and their profit margins have never been higher!

3.) Sell the EUR, buy the USD - With the ECB acting very dovishly, the EUR will fall... ignore the growing current account, or financial stability, the ECB will force the EUR lower. For the USD, the US could grow >3% this year, and interest rates could
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mimuspolyglottos avatar

Vix, Gold, Cad, we could put here much more whereat six figures guys were not precise. I am impregnated by the feeling that the whole situation is just slipping out of the US hands, no matter geopolitics or economy we are talking about. Baltic Dry Index stays below the cellar, capex is subdued, too much of ''Too Big To Fail'' in politics and in economy. Where the hell is my sell in May and go away, aaa? ZH and its armageddonian rap fails again? Fat cats overshadow tigers! CBs are offering only the blue pills, not the red pills. Thank You for the relevant one, Adrian. Best Regards.

Daytrader21 avatar

Great article as always. I couldn't agree more with what you have already said. US 10Y yields was the biggest surprise as Fed is moving away from his easing cycle I was expecting US rate to soar and breaking below 2.6 the previous days was quite a big surprise.I guess the market has to force weak hands out before moving in the right direction. Right now EUR/USD is the one to watch but until we see some raise in volatility I'm not expecting any powerful down trend to start anytime soon.

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Why are we trading FX? Is it just because of the low transaction cost? Is it because the FX manager area used to be unregulated?Nope. Here's why we trade it. Here's why no investment manager can not afford not to invest in FX as a source of uncorrelated alpha.FX is the largest market in the world. It trades more than 4.000 billion USD per day. It's liquid, the amount of market participants is high, there is a natural trading demand (from corporates, individuals, businesses that need to buy other currencies), it's easy to price/value.FX has been a cash cow in investment banking for decades. Investment banks have had always FX prop and FX flow trading and it is a core element of investment banking. In Asset Management FX it's only something to hedge, to control exposure, to be aware of the risk – rarely traditional asset managers see FX as a core source for yield. Strangely only few managers have discovered FX investment products as a source for uncorrelated yields....yet. Today fixed income rarely lives up to the asset-liability-management (ALM) requirements (approx. 4% p.a.), equities are too volatile and the returns are too unstable, alternatives are often illiquid and hard to pri…
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ritesh avatar
ritesh 12 Oct.

Nicely written, quite detailed and informative article. Nice on bro, keep more coming. Best of luck and +1

Barney avatar
Barney 19 Oct.

nice job

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