January 6th, 2009

Treasury bounce?

Treasury-Bond bashing was in full effect in early morning trade, but event risk going into the FOMC minutes combined with a technical bounce lead to a substantial price recovery. 

Ironically, after days of bond friendly data being shrugged off by a declining market, the somewhat Treasury bearish ISM services data was followed by buying.  ISM Services was reported at 40.6 despite expectations of 37 and a prior reading of 37.3.  Factory orders on the other hand came in weaker than expected at a draw of 4.6% but better than last month's reading of 6%.

We have been calling for the March T-Bond to see 131, but today's low of 131'23 may have been enough to propel some short-term buying interest as yields creep above 3%.  While I maintain my fundamentally bearish stance, I can't ignore the ten handle plunge and the fact that there should be some sort of recoil from such a move.  In fact, it may be possible for the long bond to see prices above 137 as shorts scramble to cover and latecomer bulls try to "bargain hunt". 

The 10-year note failed to get near our target at 122, today's low was 123'09.  Accordingly, I am "on the fence" in terms of direction.  I would have turned temporarily bullish at or near 122 but at current levels it seems too dangerous to be a bull and too late to be a bear. 

Whether the Treasury complex trades lower to our original targets is highly dependent on equity trade.  While we are becoming temporarily bearish stocks at current levels, we also feel that there is a strong possibility for a quick run of buy stops in the next couple of days.  Let's see what happens...

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

Flat

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

December 17 - Clients were recommended to Sell March futures near 98.84 and buy the March 9875 call for 21.  The total risk is $300 plus commissions and fees (2 of them), profit potential is theoretically unlimited, and this trade gives you three months in the market!

*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.

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