March 13th, 2009

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Position squaring and stocks dominate Treasuries

Simply looking at a daily chart of any of the Treasury futures suggests relatively tame price action in recent sessions.  However, a look at the intraday chart reveals a different story as we are in the midst of one of the most indecisive  Treasury markets that I have witnessed. 

There are clearly compelling arguments for both the bear and bull camps.  On one hand we are facing unprecedented amounts of supply thanks to relentless government debt issues, bearish seasonal tendencies and potential inflation down the road.  Also, equities seem to be holding gains and may enjoy a rally that spans over the next week or so. 

However, there are other market influences at play that are not as obvious such as heavily short small and large speculators.  Small speculators can be fickle and will "bail" at the smallest signs of a rally.  Also, when market sentiment is leaning to one extreme, the market has a tendency to do the opposite.  This is a bit concerning in that I haven't come across many traders or analysts that are fundamentally bullish Treasuries.  The most compelling argument for a bond and note rally is the fact that "investors" are now being marketed on the new ultra short Treasury ETF's.  I seem to remember the influx of new commodity ETF's just as the bubble was bursting.  By the way, clearly I am a  bit bias as a futures broker but Treasury futures are a much more liquid and efficient way to speculate. ***Warning, that is an opinion.

After considering the pro's and con's of Treasuries, I remain overall bearish but I can't emphasize the need for risk management enough.  If resistance levels are broken, the climate could change drastically.  The shrinking volatility and tight trading range won't last for long.  Bearish positions should be hedged!

We continue to doubt the market's ability to get above 128 in the 30-year bond and 123 in the 10-year note.  In fact, depending on how things look on Monday we may be interested in recommending a short position in  the 5-year note near 117'23.

I will be traveling over the weekend and it will prevent me from issuing a newsletter on Monday.  Feel free to contact me at your convenience. 

Have a great weekend!! 

* 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.

*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.