April 27th, 2010
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Sovereign debt downgrades spark flight to quality
Tuesday was an event packed session and with the FOMC's interest rate decision on the docket for tomorrow, we could get much of the same excitement.
The Case-Shiller home price index came in a little below expectations at an increase of .64% but that news was quickly forgotten once the market got word of a Greek debt downgrade by S&P to junk status. Additionally, the S&P knocked Portugal's rating to an A- (just a notch above junk). Keep in mind that before the "crisis" eligibility for sovereign securities states was an A-.
Naturally, the downgrades made U.S. Treasuries more attractive given the perceived lack of default risk. As a result, bonds and notes rallied and yields plummeted. On the other hand, the last that I had heard...the Greek 2 year note was paying nearly 15%, more than double the yield of jus a week and a half ago!
As if overseas debt concerns and tumbling equities weren't enough for the market to digest, the Treasury issued a healthy serving of 2-year notes. $44 billion of the 2-years were issued at 1.024% with a 3.03 bid to cover and an indirect bidder take of 31%. A yield of about a percent is a far cry from the 14% that Greece must pay investors. I don't see how any nation could afford to borrow at such rates for any sustained period of time.
Treasuries were on the move today, but we wonder if the buying spree will last. It will likely depend on the Fed's stance tomorrow on monetary policy, but we are leaning toward being bears on rallies. We see resistance near 119 and again just over 120 in the June bond, but such prices might not be possible if equity market (and overseas debt) volatility subdues.
Resistance in the 10-year note is 118'01 and 11925 if things really get out of hand.
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* 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.
April 22 - Our clients were advised to sell the July bond 121 calls for 22 or better, and were filled this morning on the rally.
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.DeCarleyTrading.com
http://www.ATradersFirstBookonCommodities.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.
