March 11th, 2009

Register for a free 1-year subscription to Futures Magazine on www.DeCarleyTrading.com!

Quantitative easing?

After a considerably weak open, the Treasury market was finally able to reverse course following the day's auction and on rumors that the Fed will actually begin the "quantitative easing" policy of buying long dated Treasury securities. 

The Bank of England conducted a reverse auction today in their first attempt at "quantitative easing".  The BOE will be buying two billion pounds worth of 5-year and longer dated gilts.  The efforts overseas renewed some concern over the Fed taking similar action, but wasn't until later in the session that traders were overcome their obsession with supply. 

Treasury traders can't seem to get over the supply hump.  Along with the $18 billion in 10-year notes being reopened, GSE Fannie plans to sell 5-year notes on Thursday on what is supposed to be record size.  Don't forget that Fannie sold $7 billion in 5-year notes in February and $15 billion in 2-year notes marking the largest issue by a government backed agency.  The agency also sold $2 billion in 3 and 6-month bills today. 

Also dragging on prices on the long end of the yield curve in early trade, PIMCO is publicly recommending TIPS as they see inflation may be heating up. 

The long bond and the 10-year note didn't quite see major support levels before the rally but it seems as though it was enough to spark buying that could bring us back up to the top of the trading range.  The 30-year Treasury futures will have to hold consistently above 127'05 to keep the upswing intact.  We are looking for another retest of the 128/130 area.  That said, the market won't stay range bound forever and a breakout seems likely.  Based on seasonal assumptions, the move may eventually occur to the downside following a retest of resistance. 

In yesterday's newsletter we pointed out support in the 5-year note near 116'07 noted that getting long the June 5 year near 116 could be good for a quick bounce.  Hopefully you were able to capitalize on this.  If not, I wouldn't recommend chasing it.  We may get another opportunity shortly.  Stay tuned. 

If you are holding the June Eurodollar trade, we recommended to those trading with us to take profits this morning near 95.60.  However, our target remains a little higher and there may be an opportunity to get out at the original projection of 98.65 or a bit higher...I will leave the exit up to you.

* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.  However, market analysis and commentary does.

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.

Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

March 9 - Buy the June Eurodollar near 98.46.  We aren't recommending stops or insurance with options at this point in time. 

·         March 11 - If you are holding the June Eurodollar trade, we recommended to those trading with us to take profits this morning near 95.60.  However, our target remains a little higher and there may be an opportunity to get out at the original projection of 98.65 or a bit higher...I will leave the exit up to you.

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