February 12th, 2009

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The long end of the curve reverses, drags short end.

It was a relatively hectic day, so I will keep today's commentary short and sweet.   

After a handful of consecutive days of short covering gains, Treasuries quickly reversed lower going into what turned out to be a poor 30-year bond auction.  The Fed dished $14 billion in T-Bonds, but buyers weren't as excited as they were hoping for.  However, the flight to quality bid picked up as the session progressed.

Aside from the auction, there was little for the market to chew on.  Retail sales were reported slightly better than expected and much better than the previous reading.  Similarly, business inventories were much lower than estimates.  However, deep discounting was likely the explanation.  Also adding to the confusion over the day's data, the weekly initial jobless claims exceeded expectations.  The mixed bag of nuts left traders uncertain, and prices mixed. 

What happens in Treasuries in the coming sessions is highly dependent on equities.  However, our expectations are for some type of temporary low in stocks and subsequent weakness in U.S. backed bonds and notes.  With that said, there is room for temporary equity weakness in early trade on Friday which should keep Treasury bears on their toes. 

Although a move to 130'05 is certainly possible at some point tomorrow, I can't help but feel that this rally will fizzle.  Look for a counter-trend Friday theme.  The T-Bond may be headed for 123 over the next several weeks.  Likewise, if the note turns as we expect we could see 120'25 by March.

* 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.

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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.