October 9th, 2009
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Bonds beaten down
The long end of the yield curve led Treasuries dramatically lower on the day on light volume ahead of the holiday. Just when many were looking for the 10-year note to kiss 3%, we ended up getting closer to 3.5%. We have been bears over the last week or so but I have to admit that the accelerated selling in the 30-year exceeded my expectations. The yield on the long bond jumped from about 4% to 4.25% in a matter of hours.
The day's weakness wasn't necessarily a surprise but it was an odd delayed reaction to this week's fundamental events. When you take a step back and look at the big picture, Treasuries should have suffered earlier in the week at the hands of stronger equities and a weaker dollar...but they didn't.
Keeping with Friday's theme, it seems as though the bonds may have a bit of catching up to do and could make their way down to the mid-118's before finding an intermediate-term low. However, a technical bounce seems likely given the size and speed of the drop as well as the fact that notes have, thus far, held our support area of 118.
Our clients were recommended to exit any short bond calls to lock in a profit on the trade and are now safely on the sidelines. Fills on the 128's were coming in from 10 to 8 ticks. Assuming a sell price of 25 and a buyback of 9 the trade was profitable by $250 per contract before commissions and fees. Of course, there are ways to be much more aggressive in playing this market such as option spreads, futures, or a combination of the above. If you are interested in working with us to put together a strategy that fits your personality, let us know. We would love to hear from you.
We came into the day looking for the mid-120's in the 30 year and the market fell right through it. On the other hand, we had been looking for 118'ish in the notes and support held nicely. Going into next week (and the Columbus Day holiday) we are on the fence. My best guess is that we could see a bit of a bounce them possibly resume the down move. However...I wouldn't take this ramble too seriously. We will get a better idea of what might be to come on Tuesday.
* 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. Charts provided by Track 'n Trade, Gecko software.
**Seasonality is already be factored into current prices, any references to such does not indicate future market action.
Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.
October 1 - Our clients were recommended to sell the December Bond 128 calls for 25 or better. (Sorry, there was a typo on the original...it was the 128's not the 129's).
October 2 - Those with margin and guts were able to add on to their short call position at better prices. Fills on the 128's came in at 35 and 23 for the 129's.
- October 6 - Those trading multiple lots were advised to peel one off of the table at a profit. The 128 fills were coming in at 19 and the 129's at 12.
- October 9 - Clients were advised to liquidate their remaining short calls. Fills ranged from 10 to 8 ticks.
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
Flat
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
1-866-790-TRADE
Local : 702-947-0701
http://www.carleygarnertrading.com/
http://www.decarleytrading.com/
*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.
Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.
