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June 14th, 2010

Quality bid fades

Investors took a small stride toward risky assets on Tuesday in the face of firm equities and despite signs of interest from foreign banks and hedge funds in holding Treasuries. 

Once again, we are left with little fundamental news to discuss but we are looking forward to the remainder of the week.  Once the data begins to trickle out, Treasuries might finally pick a direction.  Nonetheless, we did hear about the Empire Manufacturing index which came in at a slight miss.  Also, the net long-term TIC Flows described an inflow of $83 billion in U.S. securities.  It is far less than the previous inflow of $140 billion but given the higher dollar and lower yields, the numbers seem positive. 

Strength in the Euro has also played a part in the recent Treasury market reversal.  Not too long ago, and even at this weekend's Trader's Expo in Pasadena California, most vocal analysts/commentators/traders were bearish the Euro.  The term "parody" seemed to be used very casually and, accordingly, the bearish Euro trade became very crowded.  There were simply too many bears...if everyone already thinks that the market is going down, there is nobody left to sell and that is exactly what we are seeing in the Euro. 

There are likely several more shorts to squeeze and stops to run in the Euro.  Therefore, I expect that this move will continue to the 126 area.  If my currency analysis holds true, this should be a common factor in enabling bonds and notes to continue to slide in the near term. 

We are still looking for the September t-bond futures to see prices near 121 and the note to trade just under 119. 

 

* 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 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.

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.

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