April 14th, 2009

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Treasuries buoyed by Fed buying

The Federal government "invested" another $7.3 billion in its own 4 to 7 year notes on Tuesday keeping traders interested in the long side of Treasuries.  Also aiding the bid, inflation data as presented in the Producer Price Index suggests that inflation has flat lined...for now.  The core number was announced at 0%, despite analyst expectations for an uptick of .1%, while the headline index showed a draw of 1.2%.  The news removes inflationary fears in the near-term but traders will be looking for confirmation from the upcoming CPI data. 

In other economic news, retail sales figures were reported to be much less than expected.  The news was considered to be bond friendly and in light volume managed to push the 10 and 30 year toward major resistance areas. 

I realize that I am beating a dead horse in regards to volume, but trading in the 30-year has dropped off of a cliff.  The most recent trading sessions have been comfortably beneath 100,000 contracts.  Likewise, the 10-year note traded less than 350,000 contracts yesterday, less than half of what we would like to see. The lack of volume seems to take away some of the credibility of the rally.  Nonetheless, today's move to our resistance levels leaves us wondering if the Treasury bull will rear its head once again. 

From a technical standpoint, the 10-year note traded (and held) above our pivot area of 123'10, while the 30-year did not (128'03).  It is difficult to determine which of the two will lead the market but it seems logical to put more credence into the note which has higher trading volume.  Either way, I wouldn't be willing to put my hard earned money on the line either way. 

If today's trade is any indication,  I would expect to see the 10-year note trade to 124'10 by as early as tomorrow.  Thanks to the Fed, the 5-year note should be trading back to 119 in no time.

* 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.

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.