March 20th, 2009

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Treasury futures leaning higher, but buying seems subdued           

Treasury futures spent most of the day trading in green territory, but the realities of supply eventually weighed on pricing.  Corporations are looking to increase cash flow to finance operations and are looking to bond issues as the source.  Additionally, analysts are expecting sovereign (Dollar denominated bonds issued by foreign governments) debt offerings to tick higher. 

There is also growing concern from China, the largest buyer of U.S. backed bonds and notes in regards to the "safety" of their investment.  Without their consistent dollar (more importantly dollar backed asset) buying, the Treasury market remains vulnerable...and traders are well aware of this. 

In the previous couple of newsletters I have pointed out the possibility of a continuation of the recent bond spike to levels not seen since December.  I still feel as though this may be the case but I am cautiously looking forward to next week before trying to make any more bold predictions simply because I am getting mixed signals (just as everyone else is).

I have been a believer in bond seasonality, and have a hard time bucking history.  According to my seasonal analysis, we are entering a bearish time of year for bonds and notes.  Clearly this is in stark contrast to my predictions of 130 in the 10-year note and possibly above 140 in the 30-year bond.  On the other hand, it seems as though equities could make their way lower.  I am looking for the low 730's in the S&P and maybe even back to the 660's.  If this becomes a reality, bonds and notes may live up to my original expectations. 

If you are confused, you aren't alone.  In a nutshell, I am going into the weekend with the sense that Treasuries could defy seasonality temporarily as the speculative shorts are squeezed from the market and short covering could bring us substantially higher.  That said, inflation worries, seasonality and supply will stage a comeback as April approaches.

Have a nice 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.