April 16th, 2009

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Treasuries stumble on prospects of economic recovery

A string of "not so bad" economic news has removed some of the safe-haven bid from Treasuries to leave the market overall directionless.  Bonds and notes are seemingly lifeless.  They have essentially traded sideways thus far in 2009 as most traders are struggling with market fundamentals and going against the Fed.  Although, so far the Fed's bark has been bigger than the bite; despite the large rally following their verbal commitment to purchase $300 billion in securities, yields are sitting at or near levels seen immediately prior to the announcement.

Aside from mixed economic news, the IMF released its bi-annual World Economic Outlook and claims that the current global recession is expected to be unusually long and severe.  They also noted that the recovery will likely  be sluggish.  On the other hand, Atlanta Fed President Lockhart portrayed a rather optimistic view to the domestic recovery prospects.  Lockhart predicts that the U.S. economy will be on the mend in the second half of 2009.

We, as are many that we speak to within the industry, are having a relatively difficult time getting a handle on bonds and note prices given the recent government intervention and investor irrationality.  Many of the technical, fundamental and seasonal analysis tools that were helpful in the past have become nearly worthless. 

The 30-year bond has been stuck in a tight range between 126 and 128, without regard to a few outlying price bars, but this can't last.  The eerily quiet trade is more than likely a precursor to something much more dynamic.  Picking a direction for tomorrow faces the same odds of success as flipping a coin, so we won't go there.  Aside from what may be a retest of support near 126'05, it doesn't feel as though the market is ready to meltdown.  We favor the upside from beneath 126 and on a big enough dip may even be willing to recommend a bullish strategy.   

* 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.