April 6th, 2009

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Early Treasury bid fades on supply concerns

Despite a valid attempt at a technical bounce in the Treasury complex, prices were weighed down by a week full of auctions.  Along with the issuance of 3 and 10-year notes, the Fed will be reopening some previously issued securities.  On the other hand, the Fed was said to have purchased $2.53 billion in Treasury securities today.  However, this is miniscule when compared to issues. 

Not surprisingly, the day's trading volume was on the light side.  Lack of trading interest has plagued the market for several months and the shortened holiday week isn't helping.  Don't forget that the U.S. bond market will close early on Thursday and won't reopen until the following week. 

Unlike last week's event packed schedule, this week offers little in the way of economic news or even Fed speak.  Instead, traders will be left to rely on auction related events and equity market trade. 

We are approaching the market this week with a slightly bearish tilt as we still believe that the 30-year bond will trade near 124 in the coming sessions.  That said, there is critical resistance near 127'25 and the market must trade consistently below it in order to avoid another run at the highs.  However, given the seasonal picture as well as issues of $35 billion worth of 3-year notes, $18 billion in reopened 10-year debt and $6 billion in reopened 10-year inflation index notes we find it hard to believe that buying interest will make its way to the market prior to seeing a 124 print in the long bond.  Although we are expecting weaker prices in the near term, we don't expect a complete market meltdown.  If we are correct in our targets, we may look to sell the May bond 119 puts for about 20 ticks.

The notes on the other hand have some room to move on the upside before violating the down-trend.  With resistance at a distant 123'02 we are looking for a continuation of the selling pressure to lead the note to the mid-120's.

* 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.

April 6 - We may be looking to sell the May Bond 119 puts for 20; it will take considerable weakness to get filled.

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

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.

Past performance is not indicative of future results.  The information and data in this report were obtained from sources considered reliable.  Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.  Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.