Global markets have fared reasonably well in 2010. We are entering 2011 with an elevated uncertainty to the outlook for economy and interest rate markets. Broadly speaking rates will rise slightly and tend to remain range bound.
Trading Strategies
1. Receiving fixed rates in the USD forward rate space to capture roll down as Fed is going to be on permanent hold.
2. Rate movements have been predominantly economic data dependent. This creates huge volatility. As economy improves, activity indices are showing signs of rise and so interest rates. Conversely rates are falling in a bad economic news environment.
3. Data dependent rate moves are altering skews and creating opportunities in Swaption skew space.
This means 50 bps & 100bps OTM receiver and payers can be bought and sold opportunistically.
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