The chart below is a reprint of a NOB yield curve spread we produced in August. At that time, the NOB yield curve spread was ~126 basis points. Gold (GLD) printed 127.75 and the S&P 500 (ES) closed at 1690 (SPY – 169.0). How did the NOB yield curve spread perform versus Gold and the S&P 500? The opportunity that presented itself was the NOB yield curve spread flattening trade (Sell the NOB). The NOB moved from 128 basis points to yesterdays close of 108 basis points. The NOB’s dollar value of a basis point (DV01) is $135 per spread. That translates into a cumulative DV01 of $2700 / spread.
How did these assets perform?
GLD up $6 per share
ES down 35 handles
NOB 20 basis points flatter
So if you took a long gold position versus a long S&P 500 position you were somewhere in the net flat to down range accompanied by some rather disconcerting portfolio volatility. If you expanded your strategy to include the NOB yield curve spread, your portfolio would be decidedly in the black with significantly less portfolio volatility. That sounds like ALPHA!
Using CurveTrades, you can easily analyze yield curve spreads. Go to www.curvetrades.com to get started.
PS If you write a humorous poem/limerick about the NOB, the ALPHA Dog, we will give you a one month free subscription*. Submit entries to email@example.com
RIDE THE CURVE!
* Limited time offer. Limited to the first 500 entries. The lawyers said I had to make a bunch of disclaimers here. So I did.
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