February 23rd, 2009

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Treasury yields nearly flat despite volatility.

Intra-day volatility in the Treasury market has been incredibly high, yet daily volatility has been consistently diminishing.  Clearly, confusion is at an extreme due to unprecedented Fed debt issues and credit market turmoil.  Political and corporate policy remains questionable at best, and the outcomes of their actions are even less uncertain.  Accordingly, it is very difficult to be a directional trader in the near term. 

I have been repeatedly asked where I think the March 30-year bond is going, and the only answer that I can come up with is "I don't know".  Rather than making a prediction and crossing my fingers, I prefer to simply wait and see what unfolds.  If you are the type of trader that feels as though you must always be in the markets, you are fighting the odds in these market conditions.  The long bond has spent weeks trading in a range between 130 and 125 and although seemingly comfortable now, they won't be for long. 

Supply concerns will be confirmed with the auction of $40 billion in 2-year notes, $32 billion if 5-year notes and the $22 billion in 7-year notes which were last issued in April of 1993.  That said, as demand for the issues continues Treasury traders may look to equities and economic data for primary guidance. 

The 30-year bond futures should find resistance near 131 with support at 125, note traders should look for resistance at 125 and support remains at 121'15.  Once again, I prefer the sidelines over trying to pick a near term direction.  Let's see what happens from here. 

* 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.