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June 10th, 2011  

Join us for Part II of Getting Started in Currency Trading online seminar June 16th, at 3:30 Central, click here for free registration!  

Treasury dilemma: Debt Crisis vs. Safety

Investors are seeking quality, but with talk of defaults and debt ceilings, Treasuries just aren't the stellar attraction of "fear money" they once were.  At the trough of equity trade in Friday' session, the long bond was treading water near 126, which was a gain of less than a handle on the day.  Although 25 ticks is respectable, it could have easily been twice that in a more panic stricken environment or one in which investors put more value into the premise of "return of capital" rather than "return on capital".  In other words, the mentality of investors in 2011 is far calmer than that of 2010.  Only time will tell if panic will begin to set in, or if cool heads will continue to guide trade.   

It has been a dreadfully slow news week, and today was no exception.  Unfortunately, next week won't be much better; aside from retail sales and PPI the market will be left to sulk over last weeks disastrous data.  With this in mind, as well as the tendency for Treasuries to "go out with a bang" we have to lean toward at least one more new high before a reversal (yes, yesterday's trade fooled us a bit).   

Seasonality in Treasuries suggests some near-term softness could be followed by a mid to late summer rally...and yes, this can happen regardless of fundamentals, debt ceilings or even Treasury credit downgrades.  It is often the less obvious market forces that guide trade, while the masses focus on the obvious (remember, most people lose trading on leverage).   

That said, we'd rather be bears than bulls for the time being.  Ideally, we would be most comfortable looking lower from what we see as significant resistance levels of 127ish and 124'10 in the September bond and note, respectively.  In the meantime, look for support in bond futures near 124'13 and in the note near 122'26.

Treasury Bond and Note Option and Futures Trading Recommendations

June 1 - Clients were recommended to sell July bond 128 calls for about 30 ticks.

June 6 - Clients were advised to offset short bond calls at 15 ticks, or a profit of $235 to $300 per contract before transaction costs.

In other markets....

June 2 - Clients were recommended to sell the July Euro 150 calls for about 36 ticks.

June 7 - Clients were advised to add to their short Euro call position by selling the 151 call for 37 ticks.

June 9 - Clients were advised to offset the July 151 Euro call near 17 to lock in a profit of about $250 before commissions and fees. 

June 10 - Clients were advised to buy back the July Euro 150 call for about 14 ticks to lock in a profit of $275 per contract assuming an entry of 3

(Our clients receive short option trading ideas in other markets such as gold, crude oil, corn, soybeans, Euro, Yen, and more.  Email us for more information)