April 27th, 2009

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Treasuries are all about equities

Equities spend the day reacting, or likely overreacting, to the threat of swine flu.  Accordingly, Treasuries found a steady bid in overnight trade and despite sluggish mid-day trade, the long bond and the notes managed to hold well into the green.

The Federal Reserve bought a little over $7 billion in Treasuries on Monday, but bond traders paid little attention.  After all, their purchases are far outweighed by issues.  It seems as though the psychological impact of the policy has been much more effective in "manipulating" rates than the action itself.  Friday's low in the long bond was nearly the low of the day in which the Fed confirmed their intent to purchase their own fixed income products. 

The most notable Treasury factor of the day was a skyrocketing U.S. Dollar Index.  The greenback enjoyed massive gains against other major currencies such as the Euro, Franc and Peso.  We feel like the Dollar rally should extend itself to the 87 area and this should keep the bias in Treasuries somewhat higher.

As we have witnessed in recent weeks, a lack of economic news has resulted in highly negatively correlated trade between stocks and Treasury bonds.  Today was no exception.  We have been awaiting an equity market turn-over that would allow bonds and notes to bounce from current support levels, but this has yet to fully materialize.  While we still believe that this will eventually become a reality, we prefer to look ahead cautiously.

We see strong resistance in the 30-year bond near 127 and are inclined to  believe that this level will be seen at some point this week.  On the other hand, support may be found near 123'15 then again just under 123.  10-year note traders may cautiously higher for 122'25.

If you are following (or trading), our short bond put recommendation, we are still confident that we will be able to offset this position at a better level.  However, we aren't "in love" with the timing of the position and the market's behavior since our entry.  Be careful with this one.

* 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 17 - We recommended to sell the June Bond 118 puts near 20.

April 22 - Those of our clients that didn't get in on the original recommendation were able to get in today at better prices.  Fills were coming in anywhere between 24 and 21.

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.