April 1st, 2009

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Treasuries slightly bid but too quiet

Treasuries have managed to remain moderately bid throughout several sessions but there seems to be something much larger brewing.  I have been following this market long enough to know that trade won't stay this quiet forever.  We are anticipating a break from consolidation to the upside but only time will tell if our predictions are accurate.  Perhaps G20 events and the non-farm payrolls will be enough to shake things up. 

ADP released their monthly prediction of the governments widely followed non-farm payrolls and the picture was far from rosy.  According to the payroll services firm, the U.S. economy has lost nearly 750k jobs in the last month.  Most analysts have been predicting a slightly better reading near a draw of 650k.  As we always remind our readers, ADP has been highly inaccurate in their forecasts and that may have played a role in the lack of market reaction.  However, if they happen to be right this time around I would expect some fireworks (and a rally) in the bond trading pit. 

Other economic data reported this morning was less than disastrous but remains weak.  On the other hand, seasonal tendencies suggest that bonds and notes should be heading consistently lower in this time frame.  Clearly there are an unprecedented number of fundamental and technical uncertainties (AKA mixed signals) so caution is warranted.  However, we are of the opinion that in the coming days there will be better levels to be a bear. 

Ideally, we like the idea of selling premium against an up move in the long bond and possibly constructing slightly more aggressive strategies in the 5 and 10 year notes that involve a combination of futures and options. 

We are still looking for about 131 in the 30-year bond and near 126 in the note.  Let's see what happens.

* 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.

April 1 - Sell the 5-year note near 119'14 or better.

Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

*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.