Spread traders are smarter and/or have better information than the rest of us? I’m not sure I’ll get to read the whole thing, but I’m guessing that whatever edge was available pre-publication of this article, is now arbed away… The link is here…
Information in Yield Spread Trades
Federal Reserve Board March 26, 2019
Using positions data on bond futures, I document that speculators’ spread trades contain private information about future economic activities and asset prices. Strong steepening trades are associated with negative payroll surprises in subsequent months and can predict asset markets’ reaction to future payroll releases, suggesting that spec- ulators hold superior information about future payrolls. Steepening trades can also predict the rise of stock prices within a few hours before subsequent FOMC announce- ments, implying that the pre-FOMC stock drift is driven by informed speculation. Overall, evidence highlights spread traders’ superior information and its important role in explaining announcement returns and pre-announcement drifts.