Vol 3 Chapter 62: Short selling

"William. In addition to continuing to establish short positions in British pounds, we also need to establish short positions in German long-term government bond futures. In addition, we also need to establish a certain long position in short-term interest rate futures in the United Kingdom and a long position in long-term government bonds."
"..."
Short selling the pound, it is understandable that the British economy is in a downturn, and there is a certain depreciation of the pound.
But short German long-term government bonds and long British short-term government bonds.
What kind of sacking operation is this.
William couldn't help but frowned.
The so-called interest rate futures, as the name suggests, are standardized contracts launched based on interest rate fluctuations.
Since the oil crisis, interest rate fluctuations in various countries have become more and more serious. The government has to control the cost of private commercial borrowing. However, this kind of control is mandatory and not conducive to commercial development. Therefore, holders of various financial products, In particular, various financial institutions urgently need a tool for managing interest rate risk that is simple, feasible, and effective.
Interest rate futures came into being under this background.
Public debt, also national debt, is the largest type of advanced financial derivative in interest rate futures.
Because government bond futures directly reflect changes in market interest rates, this deposit and loan interest rate is not generated by market transactions, but set by the central bank, so the central bank's monetary policy is the most important influence on the price of government bond futures.
With the merger of the two Germanys, the East Germans happily poured into West Germany, which enjoys more freedom and richer materials, hoping to find employment and enjoy social welfare there. With the long-term integration of the two Germanys, related expenses have been forcing the German government to have a large budget deficit. increase.
When a country’s fiscal deficit accumulates too high, it’s like a company’s burden of too much debt. It is not a good thing for the country’s long-term economic development. It is also a long-term negative for the country’s currency, and it will be bad for the future. The only way to solve the fiscal deficit is to reduce government spending or increase taxes.
These two measures have a negative impact on economic or social stability.
If a country’s fiscal deficit increases, the country’s currency will fall. Conversely, if the fiscal deficit decreases, it means that the country’s economy is good and the country’s currency will rise.
With Germany’s current deficit and the high level of mark-to-dollar exchange, as the speed of German integration slows, the German government will inevitably reduce its investment in infrastructure and various investments, and the tax rate will definitely increase.
According to this logic, the probability of a downturn of the mark against the US dollar is much higher than that of an upturn.
As one of the leading countries in the European Union, the Deutsche Mark has the largest share of ecu. Now the economy of the United Kingdom, Italy, France, and Belgium is in a downturn, and interest rate cuts are needed to release currency reserves to stimulate inflation.
As the old saying goes, people can't help themselves in the arena.
In many cases, the country is not a bigger world.
In the arena of the European Union, even if Germany wants to curb inflation rate hikes, it has to consider the reactions of other countries.
Neither political demands nor the economic conditions of EU member states are suitable for raising interest rates.
There is no possibility for Germany to raise interest rates. It is shorting German government bonds. The United Kingdom has a high probability of cutting interest rates to stimulate inflation, but it has to do more British government bonds.
Boss, did you get kicked in the head by a donkey?
William thought for a long time, but he didn't understand why there is a reason to short German government bonds and long British government bonds.
Treasury bonds are bonds issued by the state. The benchmark is customized based on annualized returns. Therefore, the market trend of treasury bond futures is inversely related to interest rates.
If the interest rate rises, the income of the bank's fixed deposit certificate will increase, and the income of buying treasury bonds will decrease. Without the buyer's capital to promote, the price will go down. The opposite is also true.
Based on the current basic market in the UK and the signal released by the Bank of England not long ago, lowering interest rates is almost a certainty. Countries need lower interest rates to stimulate inflation. There is a Deutsche Bank that has converted to the European Central Bank. The demands of member states are also crucial. ,
If Germany raises interest rates again, the mark is bound to continue to strengthen, and liquid capital will continue to flow out of other countries to hold mark assets, which is very detrimental to countries except Germany.
It is almost impossible for Germany to raise interest rates.
"Boss. To be honest, I don't understand why this is done. The Bank of England has no possibility of raising interest rates at all. You may not be in the UK. The interest rate on British housing loans is not fixed. Now the UK real estate is down, they will definitely cut interest rates. "
"William. You probably still don’t understand what the core of capitalism is. Believe me, the EU is the core of capital, so it will always be capital first. Also, you probably haven’t noticed the Fed’s actions. I expect it to be discussed next week. At the interest rate meeting, Greenspan will definitely tell the market a clear possibility of raising interest rates, or make a decision to raise interest rates.
Think about it, if you are the president of Deutsche Bank, are you watching the depreciation of the mark to stimulate inflation again, or choose to raise interest rates to curb inflation.
correct.
I think you also need to understand the difference between the core responsibilities of Deutsche Bank and the Federal Reserve. "
"..."
The difference between Germany and the Fed?
William looked dumbfounded. Are they all central banks?
Helplessly raised his eyebrows.
William has a serious sense of crisis. As the company's territory gets bigger and bigger, he finds that he can't keep up with the pace of his boss's battle.
"Boss. I think I need to recharge. Do you have any good suggestions."
"Haha...William, do you know what I like best about you?"
"Chrysanthemum? Boss, if you like it, I am willing to contribute."
"Go away. Even if you don't understand my favorite, just ask. If you want to understand the rules of the world, I suggest you read the Book of Changes and Sun Tzu's Art of War."
"..."
hang up the phone.
William waved and rubbed Harty Morahan's golden hair. This fellow deeply remembered Shen Jiannan's teaching that as a trader, he must control his blood.
After a long time, his heart gradually calmed down.
Picking up the mouse and clicking a few times, various contracts in the London International Futures Market appeared in front of my eyes.
20-uK-cIR, 103.15.
sg, 99.8.
ggB, 105.35.
After a few random glances, William waved away Harty Mourahan, who was wiping his lips, and picked up the phone.
In a moment, the call was connected.
"Little San. I'm William ~EbookFREE.me~ to add more than 30 million positions. sg September, open a position of more than 10 million positions. 10-ggB, sell 30 million pounds."
"..."
Ukraine, Chenilvč Region.
An army green helicopter, buzzing and spinning over the state, sitting in the cockpit looking down from a high altitude, it is full of green, and people can feel a different kind of relaxation.
But for Anran Kardashian, the heart is like being pulled and it is difficult to calm down.
At that time, she always thought that she would never see her family again and could only escape incognito all over the world, but who would have thought that after several rounds of travel, she could eventually return to her homeland.
Every inch of the land seemed to have a familiar taste, and every piece of wood seemed to have a breath of home.
"An Ran. Nervous? This is not like you."