March 31st, 2009

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T-Bonds grind higher on weak data

Weaker than expected data reported in the Chicago PMI along with sagging consumer confidence managed to keep selling pressure muted.  As a result, Treasury bonds and notes spent early morning trade grinding higher but failed to ignite momentum trade.  Despite the uptick in equities, safety players saw no reason to ditch coupon paying Treasuries. 

As this report was being written, yields on the 30-year bond were hovering near 3.57% and the 10-year note near 2.70%.  At these rates, investors will be lucky to yield a positive real rate of return (return after inflation).  However, that doesn't necessarily matter in today's climate.  Remember, consumer confidence is lingering at historically low levels and many consumers are also investors.  Their lack of assurance in the free markets may continue to lure them into capital preservation plays such as Treasuries in the near-term.  I am not necessarily advocating investments in Treasuries, in fact I am not.  However, traders may find it beneficial to play the upside for now (or at least avoid the short side). 

That said, don't forget that this is a seasonally weak time of year for Treasuries and this makes trading in the opposite direction tricky.  While I think that we will see higher prices and lower yields across the complex, I also believe that there will be better opportunities to be a bear for those that are patient.  Should we get the rally that we are anticipating we will likely begin shopping around for short call option trades and perhaps some more aggressive synthetic options and option spreads. 

This week's main event will be the non-farm payroll data scheduled for release on Friday morning.  In the meantime, our leaders are preparing for a G20 meeting which will begin tomorrow and could create speculative volatility.  We may also see some of the speculative shorts cover positions ahead of the end of the week data.  If this is the case, the grind higher should continue into and possibly through Thursday. 

I see resistance in the 30-year bond near 131 and expect that we will see the mid-130's or higher in the coming sessions.  Meanwhile, we have targeted just under 126 in the 10-year note. 

We mentioned becoming bearish in Eurodollars at 98.90 and this is still the case.  However, we prefer to wait for slightly higher prices. 

* 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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