December 8th, 2008

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New week, but same story....Bond Buying.

Interest rate products continue to avoid significant selling pressure despite technical vulnerability.  After trading considerably lower in overnight trade, the Treasury complex pared losses to trade near unchanged for a majority of the session.  Much of the weight on pricing stemmed from news that the Fed will issue $94 billion in securities.  While this wasn't necessarily a surprise, supply issues looming in the back of investor minds may keep some sort of cap on the buying. 

It was a slow news day, and tomorrow won't be any better.  The only scheduled release is pending home sales at 10 am Eastern.  However, retail sales and PPI figures due later in the week may bring traders back to the markets. 

Bond traders haven't forgotten last week's dismal jobs numbers and some analysts point out that things may be worse than the headlines show.  For example, 637,000 were reported to have left the work force last month simply because they could not find work.  Accordingly, the shrinking labor pool may be allowing the unemployment rate to appear better than it actually is.  Some are even calling for an unemployment rate of 9.5 to 10% before the recession comes to an end. 

Light action seems to favor the upside, at least for now.  I see potential for the long bond to reach 137'07 but would prefer to see an immediate correction to 124'15.  However, failure of bonds to trade lower as equities enjoy a swift rally tells me that this market may see higher prices before a major trend reversal. 

I was hoping for more of a correction in the 10 year note, but it just isn't time.  While my downside target us under 119 in the March contract, I see the potential for another leg up to 125'28. 

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

December 2 - We recommended buying the January 119 puts for 20 or better.

November 26 - Buy the January 10 year note 115 puts for about 15 ticks.

November 18 - I like selling the January 130 calls for 30 ticks or better, but slightly more aggressive traders may look at the129 calls for 30 (this was getting filled today). 

·         You may have taken our advice to roll into the March 136 calls for even money.  This lowers the delta and the margin, hopefully improving the odds of riding this out. 

November 20 - We were recommending to buy the December T- note 112 puts for about 19 ticks. 

·         November 24 - You can get in at a better price, you may want to buy the 113's. 

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

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.