April 20th, 2009

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Faltering stocks revives safety play

Suddenly the safe-haven sentiment absent in Friday's session was in control of Monday's trade.  Treasury bonds and notes recovered most of Friday's dramatic losses as equities fell out of favor. The lack of economic news exaggerated the negative correlation between the asset classes, and we suspect that this could continue to be the case as the weak progresses.  The only significant news to speak of is durable goods orders and home sales much later in the week.  In the meantime, interest rate traders will be focused on stock earnings, specifically stock trade, for directional help. 

The March index of Leading Indicators reportedly declined by .3% according to the Conference Board; this was the third consecutive monthly draw.  While the news likely wasn't a catalyst to the bond and note bid it likely defended the possibility of an intraday pullback.  Accordingly interest rate products traded steadily higher throughout the day. 

The recent dollar rally has managed to stay below the radar, but given the slow news week may be considered highly supportive by many Treasury traders.  That said, the greenback may start to lose momentum as the dollar index futures look a bit overbought at current levels. 

In Friday's newsletter we stated:

I can't help but feel as though the stock and bond markets are due for a reversal, if not intermediate-term at least temporary.  With both markets trading near what seem to be relatively extreme pricing in regards to valuations thus far in 2009, we could see a much different picture at some point next week. 

We are looking for a continuation of the upmove in the T-bond to 127'20 but don't hold a strong opinion in either direction once this level is reached.  Similarly, the 10-year note may continue higher to 123'20 but from there it will be a "wait and see" scenario. 

* 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.

April 17 - We recommended to sell the June Bond 118 puts near 20.

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

April 17 - We recommended to buy a 5-year note futures contract near 117'12.5

·         April 20 - Our clients were recommended to take profits today at any point above 117'20 and at or near 118'01 for more aggressive traders.  In this instance, aggression would have paid off.

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.