March 27th, 2009

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Front running the Fed?

Treasuries were bid following the open of trade on a bounce in global fixed income securities and in anticipation of the Fed's Treasury purchase but the buying didn't last.  It seems as though the only buyers in this market is the Fed and perhaps speculators were front-running (buying ahead of them in hopes of catching the market appreciation once Fed dollars hit the market).  The Fed purchased $7.5 billion in two to three year Treasuries on Friday to double their investment that began on Wednesday but speculative selling erased the impact. 

On the economic front, the University of Michigan's consumer sentiment was reported to be slightly better than expected but still poor on all accounts.  The recent turn in economic data has deterred the Treasury bulls from acting on bond friendly factors.

Traders noted light volume and exaggerated moves due to a lack of participation.  Perhaps today's action isn't necessarily indicative of what is around the corner for bonds and notes.  We are the first to admit that we have had a difficult time getting a handle on this market following the Fed's commitment to quantitative easing last week.  Nonetheless,  we have also been wise enough to realize the potential harm in trying to trade a market that we aren't comfortable with. 

Call me crazy but...I am going to continue to lean higher despite the recent weakness.  We think that the 30-year could see 130'15 in the coming sessions.  The 10-year note has potential to rally to 125'12.

* 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.

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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.

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*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.