February 13th, 2009

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Treasuries tumble on more supply.

Anticipation and the eventual passing of the stimulus package rekindled supply concerns in the Treasury markets.  Despite a shorten pit trading session, the electronic contract eventually fell in excess of 3 handles.  While these types of price moves have become commonplace, they used to be rare.  Nonetheless, traders and analysts seemed to take it in stride as all are looking forward to the extended President's Day weekend. 

The economic calendar was thin and so was volume.  My guess is that the recent rally was largely in part of position squaring ahead of the holiday.  Accordingly, with many traders on the sidelines the fresh wave of selling had an exaggerated effect. 

Traders are questioning whether the demand seen in recent months for government backed securities will continue to be a factor.  After all, despite the fact that other asset classes are struggling there are obvious opportunities outside of Treasuries.  Investor portfolio rebalancing and restructuring will likely work against bonds and notes in the long-run.  Additionally, there are rumors that Chinese officials are "shopping" around for alternatives to U.S. Treasuries.    

We are sticking to yesterday's overall outlook:

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.

Sorry so short, enjoy the holiday weekend!

* 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.