Friday, November 14, 2014

Newsletter sent out this afternoon...

Sent out a newsletter to subscribers this afternoon.  Will post the newsletter here on the blog when the trade is over.

Wednesday, April 9, 2014

Last Night's GovtTrader Newsletter

This is the GovtTrader newsletter sent out to subscribers after the close on Tuesday, April 8.
Annotations made after the fact are in italics

Since NFP we've seen some wild moves in the capital markets. 

In the treasury market, we've seen 3 consecutive days of bullish price formations.  First we had a "P-up" formation on NFP Friday, and then we've had 2 days of buy imbalances.  A buy-imbalance is simply a day where the profile looks like a bell curve, but we know that the majority of activity was buying.  If the market price eventually falls back down below the mode, then we call that day a "non-facilitating" buy imbalance ("they" tried to buy the mkt to get the price high, but price falls back down) (that would be bearish).  If however price stays in the upper 50%, then we just call that day a buy imbalance .  If price moves vertically away from the mode and stays in the upper 1/3rd of the range, then we call that a P-up day (and also a buy imbalance).  It could be argued that today was a P-up (tho the shape of the px action was more diagonal than vertical....suffice it to say, today is a buy imbalance formation).  With 3 bullish formations in a row, treasuries trading near the "cheap" end of the range vs USD/JPY, and the 10yr auction tomorrow, the stage has been set for a short covering rally.

1)  We know from the JPM survey that there is a large community of shorts, plus a new community of freshly initiated longs. 
2)  We know from the trading volume yesterday and today that the majority of those shorts have not covered. 
3)  We know that going into the 10yr auction short and bidding to cover is a common strategy. 

So, the mkt will most likely be going into the 10yr auction tomorrow with a large short base.  If the 10yr auction comes strong and many of those shorts don't get to cover their shorts in the auction (what we call "stopping short") (which is what i expect), the post auction px action should be a high volume, high velocity, high volatility short covering rally.



There are a couple ways to play for this type of short covering rally (you can just go into the auction long 10yr futures, or you can buy in the mkt after the auction after the 1st repricing and give up the auction surprise), however there is another way.  Implied vol in the ZN options mkt is on the low end of the historical range @ 4%  The 124.5 1-week ZN Call option (1/2 a point OTM) was 2 bid, offered at 4 today.  This option expires Friday so only has 3 days remaining to expiry, which is why it is so cheap.   

These options were offered @ 2/64ths on the morning of April 9, and traded as high as 5/64ths during the short covering rally today.  ZN traded up to 124-08+ during the short covering rally which took place after the FOMC minutes.  I bought these options @ 2/64ths, and sold them at 3 & 4/64ths
I expect ZN to ease off the highs of the day, and return towards the 123-25 mode at some point between tonight and tomorrow (the low was indeed 123-23).  This should reduce the px of this option by 1/64th.  So, if i can buy this Call option @ 1-2/64ths, i plan on spending 1-2% of my AUM to buy it.  If we get the short covering rally that i am playing for, then ZN can trade above 124-16, and this option should trade above 10-12/64ths.  (i was the first bidder for this option @ 1/64th all day, but they never traded...the high ZN price in the following overnight session was 124-17)
This is the most focused and low risk vs potential reward strategy that i see in the mkt from the current environment.  There is always the risk that we don't get the short covering rally and this option expires worthless. However, that's not what i *think* will happen.
Since this option is trading so cheap, we get a lot of leverage for a limited amount of capped risk.  I am quite honestly surprised these options are trading so cheap...but that's why they call it a market.
Statistically, the NFP move is a fade, and i suspect that is why vol is so cheap this week.  However, i think the mkt has set itself up for an outsized move, and i want to position myself to take advantage of the potential situation.
If implied vol was expensive, then i would sell ATM Puts, but vol is cheap, so selling options doesn't seem like the best strategy to me right now.

Thursday, December 12, 2013

30yr UST Auction Post-Mortem

Today the treasury sold 13bln 30yr bonds (re-opened the Nov-2043 issue).

After yesterdays fireworks following the weak 10yr auction, tensions were high going into today's 30yr bond auction.  Going into the auction, the 30yr bond had been outperforming on the curve all day (which is surprising on a 30yr bond auction day).  The belly/front-end of the curve saw decent selling, but the 30yr did not (again, very surprising for a bond auction day).



Going into the auction, the wi 30yr ("wi" = "when issued" - which is what we call a bond before it is auctioned) was trading 3.89%.  The 5yr and 7yr points on the curve were trading near the lows of the day (the 30yr bond was trading 97-17+ @ 3.89%....and the low price pre-auction had been 97-12...so we went in to the auction pretty close to the low).  The auction priced 97-10+ @ 3.90% (so, a 1 basis point tail = 1bp cheaper than where the bonds were trading in the secondary market going into the auction). 



Now, this is the exact same type of result that we saw at yesterdays 10yr auction (1bp tail) but the lead up to the auction was entirely different, and the price action post-auction is also completely different.  Yesterday, the market rallied right into the auction and went in right near the day's high. Today, the mkt sold off pre-auction, and we went in close to the lows (the 30yr bond was strong on the curve...but outright price was still lower on the day - especially if you look at the belly of the curve).  Yesterday, the auction tailed 1bp, and the mkt sold off like a banshee.  Today, the auction tailed 1bp, and the mkt hasn't really gone anywhere...the mkt is going sideways in-between the auction stop price and the pre-auction price.  This is VERY RARE for a 30yr auction.  The result is almost always a big surprise one way or the other.  I was saying before the auction that the entire mkt felt very weak, which indicated a tail was coming.  Since i went into the auction short and was bidding to cover that short and get flat, i was hoping for a much larger than 1bp tail.  The result of only a 1bp tail was a "meh" result (still made a trading profit, but i was hoping for more).  For a 30yr bond auction, i would consider a 1bp tail a practically "screws" result...and that explains why the mkt is just chopping sideways since the auction..this means the mkt was perfectly positioned, everybody is happy and nobody exited the auction with too many or too few bonds from the result.

If you are wondering "what next?"  Well, next week the US treasury is auctioning 2yr, 5yr and 7yr notes.  This is unusual (these auctions typically take place in the last week of the month) but the holiday calendar has pushed things up.  This may partially explain the weakness in the 2-7yr part of the yield curve.  Also of concern to the belly and front-end of the curve is the article recently published in the NY times talking about Fisher's views of forward guidance.  His comments on forward guidance were very "indecisive" regarding the front end of the curve, where the mkt has experienced and was expecting the more reliable "lower for longer" mantra.  This combined with the auctions next week are both reasons for the front end of the curve to sell-off...and so it has.

Until we get new information, or surprising price action, i'll be flat and waiting.

If you would like to see my thoughts on the UST market intraday as well as see my actual trades in real-time, then i would suggest joining my private twitter feed.  The signup link is on the top-right of my blog.


Wednesday, December 11, 2013

10yr Auction Post Mortem + 30yr Auction Thoughts

Today the US Treasury auctioned 21bln 10yr notes (re-opened the Nov-2023 issue). 

Going into today's 10yr auction, ever since the NFP number at 8:30am on last Friday, the US treasury market has been in short covering mode.  There was a markets survey that indicated the active trading participants in the treasury market were extremely short (by over 30% which is huge) a full week before the NFP data was released, and the short position continued to build as we approached NFP.  The NFP number was strong (+200k jobs) and so the mkt immediately repriced lower as you would expect.  However, the important piece of information was not the NFP number...no, the important information was the mkt's aggregate position (very short going in), because in the end, it is positioning that drives trading activity.  So, what would you expect this large community of shorts to do after the market dropped in their favor because of the strong NFP data?  If you said "cover their short by buying the market," then you would be correct. 



Normally (in the past), this type of short covering event would take place in a single day.  However, because this net short position took multiple days to develop (since Dec-1), and was so widespread (not only was the short position large in size...but it was large in the number of participants that were involved), the following short covering rally has taken a full 4 days to work thru the market.  I can say with confidence that now, that large short position has mostly been covered.  This does not mean the market is long...this just means that the market no longer has an embedded short position that needs to buy to cover.  

From all our lessons on market behavior, we know that when the last short covers (is done buying) the market stops going up (no more buying) and falls back down to around where it all started.  I think we've just about seen that.

So, the question to ask is "now what?"

Tomorrow we have the 30yr bond auction, and next week the 2yr, 5yr and 7yr auctions.  So, the market will need to reset those shorts to absorb the upcoming supply.

I could say a bunch of other fluff to fill space, but that really is all there is to it.  The mkt must have a certain amount of short position embedded to make room to buy the supply (auctions), and so, i expect a pop in the market to be sold to facilitate that supply process.  If the market does not "pop," thereby not enabling the market to get short again, then i expect last minute setup selling, and perhaps another tail in the 30yr auction tomorrow.

That's about all the strategy I have for now.  Levels will be available on the private twitter stream.

-govttrader

Thursday, November 14, 2013

US Treasury 30yr Auction Post-Mortem

Today the treasury auctioned off 16bln 30yr bonds at 1pm (ET).  This occurred during a fairly volatile backdrop.  Janet Yellen was answering questions from the Senate for much of the "setup" period.  Her testimony was fairly QE - supportive, and so the bond market rallied during her entire testimony.  Then we had a 3.5bln 10yr POMO @ 11am (ET) 2 hours before the auction.  This was the pre-auction crescendo that many day traders are familiar with.

Bonds rallied right into the 20minute period after the 10yr POMO in a crescendo of volume....and then fell back down to the overnight VWAP after the 1pm 30yr auction tailed 1.5 basis points.



(pictured are 30yr UB futures vs inverse DX futures)

I suggested selling bonds at 11:20am this morning into the crescendo of volume, and covering after the auction.  As a trader, i couldn't really think of anything else to do.



Up until the 10yr POMO, the 10/30 curve was stable at 108 basis points.   This indicated that a concentrated short setup had not taken place.  However, after 11:20am, 30yr bonds started to underperform (both outright price and on the curve), indicating that the setup (selling bonds pre-auction) had begun.  I thought the timing of this setup selling very coincidental.

While the treasury market is still generally strong post-auction (the belly inparticular), the fact that the 30yr auction tailed indicates that the large short base pre-Yellen speech release has mostly covered and the market should be fairly stable in the current price range.


 (UST yield change on day)

Typically, the treasury market builds a concession pre-auction, and actual investors of US Treasury paper buy these auctions to get long.  Today that is a scary trade (getting long) because the market has repriced higher after Yellen's early-release speech last night.

As a day trader, i won't participate in that trade...but as a portfolio manager, i'm sure that many are.
 With Janet Yellen at the helm, its clear that the economy will need to clearly demonstrate deep economic strength before she will consider reducing QE...and that may be a long time away.

If you are interested in this type of bond market commentary intraday, in addition to following along with the trades that i am doing in the market, then i suggest trying out my paypal subscription twitter feed.

-GovtTrader

UST 30yr Pre-Aution Thoughts Before Yellen Confirmation Hearing

On any other 30yr auction day, i would be selling 30yr bonds right here (9am in NY) (30yr bond yield @ 3.79% and UB futures @ 140-21   both higher in price by 4 basis points on the day) in anticipation of the 16bln 30yr bonds (32bln 10yr equivalents) to be auctioned in 4 hours.

(pictures 30yr UB bond futures vs inverse DX)

However, today is not any other day.  Unemployment claims are slightly up...more than expected, labor productivity is up, and unit labor costs are down.  All of these point to no desire to increase hiring.  That is bad for the consumer (because the consumer is labor), and hence bullish for bonds.  These numbers ought to also be bearish for stocks (a weaker consumer does not increase sprnding)...but it seems the QE fever is still keeping S&P futures high before the open.  In a world where more QE = higher stock prices...Yellen's prepared remarks released yesterday made no mention of taper, and were highly supportive of QE continuation (though she did not explicitly state that).  The remarks were vague, but erred on the side of continuing current accommodative policy (so, QE-4-ever).

This causes a conundrum. Regardless of Yellen's testimony and Q&A session this morning, there will still be a 30yr bond auction at 1pm (ET).  Given the strength and low volume yesterday, and the current bullish tone of the bond market (4bps stronger from yesterdays closes) the bond market does not feel like there is a significant setup of short 30yr positions.  This must take place before the auction.  Primary dealers must each bid for their pro-rata share of the auction (so about 800mm each).  No dealer wants to come out of a 30yr bond auction long 800mm 30yr bonds...its just too much risk in a world where directional risk is shunned.

This is the backdrop in the minds of bond traders as we approach Yellen's testimony and Q&A session.  We will be reacting to her testimony with this in mind.  However...to be clear...if she does not indicate a desire to extend QE (either in fact, or by indicating a lower unemployment threshold) then there should be good selliing of 30yr bonds to setup for the 1pm 30yr bond auction.

Typically, bond traders want to come out of the 30yr bond auction long bonds...but typically that occurs from a very low price, as the market usually sells off going into the auction.  Today that is not the case (so far).  I expect today to have unusually high volatility in the bond market....but we will just have to wait and see.

I'll be active on twitter today...so feel free to join in the conversation.


-GovtTrader

Wednesday, November 13, 2013

UST 10yr Auction Post Mortem

The UST market grinded higher today, right into the 1pm (ET) 10yr auction. The 10yr auction came at the EXACT high print of the day on the current 10yr note @ 2.75%.   This is uncommon for a low volume day (i was expecting a tail...instead the auction came on-the-screws, at the high of the day).

Typical trading volumes for a 10yr auction day are around 450bln 10yr equivs. Today we are at 240bln 10yr equivs (asof 1pm), and on target for a 360bln 10yr equiv day...so on track for an 80% volume day.

The USD index (DX) was weak today, which typically creates strength for US Treasuries. This held true today, and probably explains a portion of the bid in the UST market going into the 10yr auction.

(pictured are 10yr futures vs inverse DX futures)



While there is no use crying over spilt milk (most traders go into the auctions short, and then bid to cover that short, hoping for a Dutch treat), lets start to think about what this means for tomorrow's 30yr bond auction.

We know there was a large-ish UST short position initiated after NFP on Friday.  I can only surmise that this aggregate short position (combined with general USD weakness) is responsible for the strength in todays 10yr auction.  With the treasury market still sticking at the highs of the day (in fact making a new high as i am writing this), it feels safe to assume that there is more short covering to be done.

This is the backdrop as we now begin our approach into tomorrow's 30yr bond auction.  30yr bonds have underperformed on the curve today, which tells us that a short 30yr setup has already begun (possibly outright..possibly on the curve).  We will have more clarity on that point tomorrow.

Trading volumes were very low going into the 10yr auction..and are still low 30 minutes after the auction.  It feels like a significant sized group of market participants are not participating in the US Treasury market.

More later on twitter

Tuesday, November 12, 2013

Surprise - US Policy Reduces Trading Volumes AND Liquididty In The US Treasury Market - BRAVO

The US Federal Reserve Bank has been easing quantitatively (QE) for 4 years now, since 2009.  Over this period, average daily trading volume in the US Treasury market has reduced from 500bln 10yr equivalents per day to 350bln 10yr equivalents.  350bln 10yr equivs may still seem like a big number...but this is a 30% decrease in trading volumes, and that is a reduction not only in volume, but liquidity.  Some readers out there might think"so what?" or "whats the big deal if the US Treasury market is less liquid than it used to be?"  The answer rests in the ultimate lenders of capital, and the structure of the Treasury market which is of great concern to participants of this market.  Investors (yes, a rarely used word these days) prefer to invest in assets that are liquid, especially when that asset is designated as a "risk free" asset.  Liquidity = ability to enter / exit at tight spreads without affecting the market price for the security.  The US treasury market used to be the deepest most liquid bond market in the world.  This characteristic of the UST market has significantly faded as QE has run its course, and the result is a reduction in actual "investors" of US government debt.  This is partly why the US Fed is still doing QE.  If the Fed doesn't buy US govt bonds...who will?  The value of the USD has been cheapened by QE, and that significantly increases the risk in holding UST debt.  Think about that for a moment..the US Fed's actions have increased the risk of holding UST paper.  UST paper is supposed to be the "risk free" asset against which everything else is judged.  If the "risk" of holding the "risk free asset" increases...how are investors to measure "risk."

 I will leave it to the reader to draw parallels to the situation as it is currently playing out in Japan.

The Fed engaged in QE for 4 specific goals.

1)  Push investors out the credit curve (from UST --> corp bonds --> Stocks)
2)  Reduce / keep down interest rates to fund US Govt spending
3)  Increase inflation (for example, prop up the housing market)
4)  Decrease unemployment

Of these 4 goals, #s 1-3 are credible.  #4 is not so clear.

#5 is not a "goal" but an unintended side effect.
5) Reduced secondary market net supply while increasing supply of the currency  = reduced trading volume = reduced liquidity

I suppose i could repeat the phrase, "when the only tool you have is a hammer...every problem looks like a nail"

Here is a direct example of #5

This week is the refunding for long term UST debt (10yr notes and 30yr bonds).

With the QE induced reduction in trading volume and liquidity, expect the remaining market trading participants to continue selling UST's ahead of the auctions...to "make room" before bidding on bonds in the upcoming auctions (remember, primary dealers are required to bid for their pro-rata share of every auction...so about 5% each).   As the US Fed continues to print USD to buy UST, the world incrementally loses trust in the value of the USD. Think of the tipping point (currently taking place in Japan as well).

Of course, there has been talk and speculation of the Fed reducing / ending their QE program.  Unfortunately, there is no way for the US Fed to "exit" their QE program.  The only exit option is to wait for the debt to mature and swap IOU's with the US Treasury.

The market is a discounting function, in that it discounts future expected values in the current price of assets.  This means that ultimately, when the market realizes that the Fed cannot exit its QE position (i'm amazed this hasn't happened yet), the discounting function requires the price of UST debt to drop, yields to rise, and the currency to cheapen.  And here is where the Fed holding a sizable portion of all outstanding UST debt becomes both a problem, solution, and problem again.

1) Problem:  QE reduces value of the currency, and thus (reduces desire / increases risk) of holding long term US govt debt.
2) Solution: the central bank steps in and buys the long term debt, inflating financial assets
3) Financial asset inflation translates into consumer price inflation
4) Problem:  --> see problem #1

5) The modern world hasn't figured out #5 yet, however Japan is on the path to experience #5 before the US.

It is hard to imagine life in the US falling over due to financial failure, as happened in Greece and Cyprus.  Of course in the US it would be slightly different, as the US can print money and inflate away certain problems.  The scary part is when those who have been inflated out of being able to survive get hungry enough to riot...that is when chickens in the US will come home to roost.  This is a slowly building phenomenon...it does not happen overnight.  And every slowly building phenomenon has a "tipping point."

Back to the markets....

As volume and liquidity decrease with the path of QE, we continue to get closer to the moment when the market actually discounts this reality.  This is the only reason US bond yields are as low as they are (the same could be said for European Govt bonds).  The market hasn't fully discounted this "non-exit exit."  Similar statements could be said about the situation in Spain, France and Italy.  Amazing our ability for cognitive dissonance, no?

While this all sounds oddly familiar to a ponzi scheme (the kind that goes along fine until one day it implodes)...the effect today is a reduction in both liquidity and trading volume which has created "volatility gaps" or "bifurcated volatility"  This is simply recognizing the path that we are currently on.  I don't expect the govt (US, Europe, China or Japan) to reverse course...its just important to recognize where we are on the path.

Here is the real purpose of this article....how should i change my trading strategy to adapt to this new volatility regime?

Until recently, the average daily trading range for 10yr note futures (the most liquid UST security) was 20 ticks or about 8 bps (a tick here is 1/32nd of 1 USD of face).  Of course when we say "average" that implies some daily vol ranges are bigger than 20 ticks...and some are smaller.  Days with significant ECO data (NFP, FOMC, large duration auctions, Housing data,  CPI, ect..) expect larger than average trading ranges and volatility.  Days with less significant ECO data expect less volatility and smaller trading ranges.  This basic concept still holds true today...but the gap in average volatility between a big vol day and a small day has increased (much like the gap between the rich and the poor).   In today's market, a large vol day might see a 12-16bp range...and a "normal" small vol day might see only 3-5bp trading range.  5 years ago, these vol range were more like 5-8bps and 10-18 bps.  The result is that during the intermittent "slow periods" the market is extraordinarily slow..and during high vol events, the market reprices so fast that large entities do not have the ability to change their position before the market has significantly repriced.  This is what we call a reduction in liquidity.  As a small individual trader, you may think this does not have a significant impact on your day-to-day life.  But as an investor in the institution (do you have a bank account?  do you have a pension fund?...then you do have a stake here) this affects us all as the cost of hedging interest rate risk has significantly increased.

So, as a day trader, how do we respond to this change in the structure of market volatility?  It means that the average mean reversion trades have much smaller ranges.  If you "need" to make X dollars per day trading...and intraday vol is reduced, then you must therefore trade larger size, with more leverage to make up for the reduction in average volatility.  This poses a problem to our internal risk manager.  Increased size / leverage on your account means tighter stops in terms of price ranges (for example, risking 5k to make 15k).  With larger size you will lose 5k faster if the market moves against you.  So, this increases the probability that you will get stopped out, and thus decreases the expected value of your mean reversion trading strategy.  An option is to not increase your trading size / leverage.  However, with the smaller vol ranges, this implies that you will not be able to hit your revenue targets, and this has caused banks and hedge funds to look elsewhere for their trading / liquidity providing business.  This is why trading volatility has decreased...market participants have simply gone elsewhere...which reduces not only trading volume but liquidity.

These conditions are what drive traders (liquidity providers) out of an illiquid market, and into a different, more liquid market.  Illiquid Markets tend to be "sticky" when trading volumes are small..and "gap" when trading volumes increase.

So, what is my advice?  You could either take your stake, pull out and go find another more liquid venue to trade (FX perhaps?).  Trust me....you would not be the first.  For the remaining traders...there is still opportunity..but that opportunity comes with increased risk.  This is the hallmark of an emerging market (yes, we are still talking about the US Treasury market).   This all sounds reminiscent of stories about traders who blew up when volatility "gapped."  LTCM is the most famous, but there are numerous others.

To be clear, i'm not advocating traders leave the UST market..i'm simply pointing out that market structure has changed...and in order to survive, we as traders (intraday liquidity providers) must either change with it....or be pushed into insolvency.

So how do we change our trading strategy with this decreased average volatility?  We need to be more aggressive.  This applies both during the slow mean reversion trading days, as well as the trending trading days.  Gone are the days where you can sell a good pop...or buy a good dip.  Now, you need to figure out your intended direction, and initiate trade closer to the middle.  This of course increases the risk that you will get stopped out if you are making such decisions on a random basis.  You have to "know" what will happen next.  Does this describe how you "feel" about the US Treasury market?

Yup...still talking about the US Treasury market here.  Surprised??


Friday, July 19, 2013

Why Do Treasury Traders Complain About Low Trading Volume??

On the one hand, for just about everybody trading in the UST market, there is always enough liquidity to put on or take off a position, in full, at any given moment.  How many traders trade more than 1000-2000 10yr contracts?  You can always buy or sell 1000 10yr contracts without moving the market.   While this is a problem for the primary dealers (who often bid / offer 1bln 10yr notes for their customers...the equiv of 10,000 10yr contracts), this is not a problem for the average day trader.

However, the price action patterns that occur when 50mm/bp (60 bln 10yr note equivs) trade in a 15minute time bar...vs when 5mm/bp trades in a 15minute bar...well, they are just different.  I know that statement is a little vague, but its difficult to put into words what we traders have learned via pattern recognition.   Everybody sees this activity in the screens, and the existence of this activity means more traders (large traders) are participating in the market.   Even though the UST market is the "deepest and most liquid bond market in the world"....there are still quantities that scare even the primary dealers.  The benefit of having large volume trade in the screens is the mechanism of price discovery, and volatility.  Scaring the dealers (the liquidity providers) enables things like short covering rallies...long liquidations, supply distributions, and the like.  The more volatility...the more price discovery...the easier for day traders to read what the larger market participants are doing...and thus...the easier to follow along.

To a certain extent, this is just a gripe....but today, for example, 10yr futures were stuck in a 4 tick range for 7 hours (10am --> 5pm)!!!  This is just not normal.   Also, the price discovery process (price action) normally has a volume measured move...eg...price moves based on a certain quantity of volume.  With the lack of significant volume trading in the market...price doesn't move enough...doesn't create enough volatility to get an accurate "read" on the direction of interest rates.  Volume tends to create volatility...which tends to bring in additional market participants.  Its that age old saying...volume begets volume.

This week, daily trading volumes were 50-60% of average for the past 2 months, and intraday volatility was reduced by a similar margin.  I'm hoping that the hot July in NYC is not a coincidence.  I'm hoping that many large traders are simply on vacation and will return at the end of the summer.  If not...then my trading strategy will need to change.

Of course, my complaining won't change anything.  Until trading volumes return, the best volatility will occur during London trading hours into the NY morning...and the NY afternoon will be the dead zone.