May 5th, 2009

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Treasuries are heavy, but bottom may be near

Light action and better than expected economic news kept bond and note futures under moderate pressure.  While Treasuries spent most of the day in the red, the bearish conviction was weak.  Accordingly, I sense that a bottom may be looming.  That said, this is a market that is known for violent trend reversals and today's trade certainly wasn't violent.  I suspect that we could see some sort of key-reversal low in the coming days that could extend to, or below 120 in the T-bond and the mid 119's in the T-note.  Then again, this market has taken on some new characteristics and could be forming a rounding bottom as we speak (likely just to prove us wrong). 

Market influences were mixed.  The ISM manufacturing index was reported at 43.7, better than the prior reading of 40.8 and expectations for 42.  Conversely, a relatively successful action of 1 and 3 year notes seemed to keep a floor under Treasury prices. 

There is a lot of anticipation over the upcoming bank stress test results as well as Friday's employment data.  Each of these events leaves risk of market exposure relatively high and makes trading in this arena much more difficult than what it would normally be. 

We would love to sell puts beneath this market, and maybe go long futures in the 5-year note or synthetics in the 10-year but are patiently waiting for a lighter risk opportunity.  If you want to play the upcoming event risk, we recommend playing it safe.  In a perfect world, we would like to be long the June 5-year near 116 but if you are scared of missing the boat, you may look to purchase the futures near 117 and buy a June 117 put.  This will give you 17 days in the market with limited risk and allow you the ability to peel one leg of the trade off at a time in either favorable or adverse market moves.

If you are interested in learning more about these types of trading strategies, join us on May 7th at 4:30 pm for a free online educational webinar.  Register at www.NYIF.Com .

* 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.

April 30 - Our clients were recommended to sell the June Eurodollar near 98.045

·         If you are uncomfortable with the possibility of a retest of the January highs, you can buy a June 99.00 call for about 13 tick to limit your risk on the trade to about $212 before transaction costs

·         Keep in mind that this market isn't far from its all time high, if you are comfortable being short and are properly capitalized you may want to consider adding on if we see a sharp rally.

*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.