[CrushinFelt]

I guess I should be more clear about my "bet" on countrywide. One of the main factors that has hurt this bond (increased the yield) is the assessment of CFC's default probability. I hold a view that the market has overreacted and thus believe I am receiving a higher yield than I should for my assessment of their credit risk.

The yield curve play is more of a "kicker" that will help my trade rather than being a main factor. I believe that IF the market's assessment of countrywide's credit risk comes back to earth, the yield will of course drop, and any fed rate cuts that may be implemented between now and then will also help to decrease the yield.

Summary of my trade, worst case scenario I hold this bond 'til expiration earning the yield (receiving a higher yield than I "should" based on their probability of default, though I think there's very little chance the market lets them default). Best case scenario, their creditworthiness increases, the fed cuts the rate a few times over the next 12-18 months, and I sell the bond for a nice gain.

My next trade, if I were to make one which I won't because I'm taking things slow, would be to bet on the spread between the 10-year and 2-year treasuries tightening as the tension in the market eases. This is most simply done by just longing the 10-year and shorting the 2-year right? Would that fall under your "Steepening" (probably flattening in this case) category?

This stuff to me is much more interesting than plays on equities.

Thanks for the input.

Also, I'm not allowed to trade Fed Funds Futures because I work at the CME and I signed a piece of paper saying "NO FUTURES OR OPTIONS FOR YOU!" [img]/images/graemlins/tongue.gif[/img]