April 9th, 2009

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Holiday trade, no safety bid in bonds

Bonds and notes suffered sizable blows in pre-Holiday trade as safe-haven buying dried up in light of the newfound equity market strength. 

Treasury traders didn't seem to concerned with the fact that the Fed will be buying again next week.  Supposedly, they will be looking to buy across the curve beginning with the 1-year Treasuries.  The transactions are expected to take place on Monday, Tuesday and Thursday.  While we feel as though Fed buying will keep a floor under the market (and a cap on yields) in the near term, we also feel as though bonds and notes are destined for lower valuations in the coming couple of sessions. 

If you were watching intraday price action, you were likely shocked to see a nearly full handle rally in the 10-year note without much warning.  The move took place following an auction of re-opened 10-year notes.  The Fed sold $18 billion worth of notes to decent demand.

Next week offers little in terms of economic news so traders will be relying on the stock indices and currency markets for guidance.  Because of this, market liquidity may be slow to return to the marketplace.  If this is the case, it seems as though the path of least resistance is lower.

However, mid-April should provide a few more fireworks.  In the week beginning April 13th, we will hear about the latest inflation news, the Fed's Beige Book, housing data, the Philly Fed, and TIC numbers (which show the cash inflows and outflows of U.S. securities).

I have adjusted my downside targets in each of the Treasury contracts.  Although I have been calling for 124 in the T-Bond it now seems as though that may be a stretch.  Instead, I see heavy support near 124'16 and we could see this level by early next week.  In the 10-year note, I am now looking for the Mid-March lows near 120'24.

Have a great Holiday!

* 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.

*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.