March 23rd, 2009

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Bad bank plan and stock rally weighs on Treasuries

Treasuries traded weaker as stocks boomed on details of the "bad bank" plan.  However, bond and note traders are wondering when they will get details in regards to the Treasury's vague pledge to purchase its own debt issues. 

Just as the massive stock market moves were made in light volume, the lack of massive price moves in Treasuries was done in thin trade.  Government fixed income securities seem heavy, and despite last week's spike, have had little upward momentum.  However, the bears are also displaying a lack of conviction.  There are far more speculative (fickle) shorts in this market than longs.  If I were a gambler, I would say after some digestion the 30-year and the 10-year note will be more likely to go up than down.  That said, the near-term direction is highly dependent on any details in regards to Treasury buy-backs. 

Also weighing on Treasuries is the U.S. greenback.  A cheaper dollar, in theory, would lure foreign investments into domestic securities.  However, the problem is that many foreign central banks and other investment entities are already heavily weighted in U.S. backed securities.  The plummeting dollar does more to trigger liquidation that it does new capital inflows. 

There is a lot of event risk going into tomorrow.  Bernanke and Geithner will be speaking before the House Financial Services Committee to discuss AIG bonuses.  Later in the evening, President Obama will hold a televised news conference. 

The June 30-year futures contract must hold (close) above 128 in order to avoid a push lower to 126.  Believe it or not, the recent digestion hasn't disrupted the technical projections for higher prices.  At 128 we have merely retraced last week's rally by 50%.  I won't completely give up on a continued rally until I see failure to close above the 61.8% Fibonacci support near 127.  Likewise, the T-Note could pull back to 123 without compromising the bullish posture. 

We recommend being flat going into tomorrow's events.

* 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.

Flat

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

*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.