Interest rate differentials

[bbjit]

Originally Posted by Nonpiker

bbjit,

I think one thing you may have missed is the fact that the roll rate can and do change. You are not locked in like with a forward (discount or premium points), you are subject to the daily roll rates. If something should occur and the BOE slashes rates and the BOJ hikes your 2.0%+ goes down the tubes.

Very true nonpiker

[bbjit]

Having slept on this I came to a conclusion that one can design a trading system that goes only in the direction of the interest rate differential with a predetermined stop.

The other way of trading this is on wednesdays when you get the double rollover , in one of the active trader magazines in the last 6 months there was an article that did some testing on this strategy and it actually made quite a handsome profit, you buy on wednesdays and sell on thursdays or just after the roll over occured.