December 5th, 2008

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Treasuries take shocking employment data in stride.

The Treasury complex finally gave up ground with the short end of the curve dragging on the long end.  The interest rate complex failed to make much progress to the upside despite a horrific employment report triggering moderate profit taking.  Both the five-year and the ten-year notes outpaced the long bond on the way down, but today's moderate pullback is miniscule relative to the monster rally. 

Luckily, expectations for the payroll data were extremely low because the numbers delivered.  Along with massive revisions lower to previous reports, the U.S. economy lost a reported 533,000 jobs in the month of November.  The markets had spent much of the last two weeks pricing in the possibility of such devastation but the actual occurrence wasn't enough to keep the ball rolling. 

In yesterday's report we noted the possibility of a blow off top that could extend to 135.  Today's high of 135'02.5 and subsequent plunge seems to be nicely cooperating.  However, the selling in the long end of the yield curve was too tame for that to have been the high of the move. Trading two handles off of the high would have been considered a substantial move a few months ago, but this is a different market.  The lack of follow through selling suggests that the 30 year bond may try for resistance at 136'05.  I don't see any meaningful support in the March bond until 123'20 and the 10 year note at 118'02.

Sorry so short, have a great weekend.

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

December 2 - We recommended buying the January 119 puts for 20 or better.

November 26 - Buy the January 10 year note 115 puts for about 15 ticks.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today). 

·         You may have taken our advice to roll into the March 136 calls for even money.  This lowers the delta and the margin, hopefully improving the odds of riding this out. 

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks. 

·         November 24 - You can get in at a better price, you may want to buy the 113's. 

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

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Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

There is substantial risk of loss in trading futures and options.