October 14th, 2009

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Treasuries in free-fall

Decent economic news and higher stocks enabled the selling pressure to return to Treasuries.  The day's move leaves the benchmark 10-year note with a yield of about 3.4% but it is the long bond that seems to be bearing the brunt of the bearish sentiment. 

Moderate gains in September retail sales kept pressure on Treasuries but all eyes were on the afternoon release of the FOMC minutes from the September meeting.  The news was mildly positive for the economy but offered no real surprises.

The U.S. dollar is trading around 14 month lows with little signs of life.  While the bond market hasn't been currency sensitive in recent weeks, we think that this could change.  It appears as though the dollar is nearing a low (for this move at least) and a reversal in currencies could lead to similar action in bonds and notes.  In the near-term, we think that a little lower in each is possible and even likely but we are growing bullish. 

Similarly, equities have had a nice run and the chart is telling me that the rally isn't quite over.  However, we think that stocks will wane at some point in the coming days.  Assuming we are accurate in our equity call, bonds and notes should find support. 

We admit that these are bold (and unpopular calls) but this is what the charts, and our gut, are telling us. 

We are beginning to grow bullish, but are patiently awaiting better prices.  We still think that the 30-year bond will move below 119 and that the note will see prices near or below 117 before turning the corner.

* 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.  Charts provided by Track 'n Trade, Gecko software.

**Seasonality is already be factored into current prices, any references to such does not indicate future market action.

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

Flat

Treasury Bond and Note 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.