*All rights reserved.  Reproduction or distribution of this newsletter without prior consent is strictly prohibited.  October 7th, 2010  

Treasury trade pauses with Non-Farm on tap

Today's trading session was a near non-event for Treasury traders.  Yields on the short end of the curve traded slightly lower and the long(est) end slightly higher.  This isn't a surprise in light of the event risk involved in holding positions into tomorrow's numbers.   

Yields are reaching dramatically low levels and, therefore, the notes seem to be attracting a substantial amount of bearish traders (looking for prices to fall and yields to rise).  However, that could actually fuel the rally as fickle and undercapitalized bears are temporarily squeezed out of the market.  However, Commitment of Traders data released by the CFTC paints a different picture of the 30-year bond.  In fact, large speculators (smart money?) have gone short while small traders are long!   

Our next upside target in the December 30-year bond futures is the mid to low 136's and just over 128 in the 10-year note.  We are looking for the 5-year note to see 122 on this run, but will become bearish from there.   Tomorrow could be setting up for counter-trend trade, if you are a day or swing trader you might want to look to fade an employment report rally.  A reminder from Yesterday's report:  

The next few weeks will be tricky.  In the coming days, the market is vulnerable to a temporary seasonal slide.  Yet, with equities overbought and fundamentals calling for a pullback before an even bigger rally...Treasuries are susceptible to swift buying as investors move from stocks to bonds. 

Treasury Bond and Note Option and Futures Trading Recommendations

**There is unlimited risk in naked option selling.  

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.  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.