Treasuries on the Long End of the Curve

Indecisive equities and even less certainty in Washington aided a short covering bid in Treasuries. The 30-year bond and the 10-year note enjoyed a bulk of the buying while the short end of the yield curve dragged a bit. Many analysts attributed the buying to a flight to quality bid, but in my opinion, it was likely driven by technical short covering. With today’s gains, the yield on the March T-Bond is nearing 3.5% and the note slipped to about 2.75%.
Yesterday’s weak data was relatively bond friendly. The ISM manufacturing index came in at 35.6, dismal but better than the expected 32. Likewise, personal income shrunk at a slightly smaller pace that most were looking for, but a negative number is far from promising.

Trading volume remains light, as has been the case since fall of 2008. Based on my conversations with retail and floor traders it seems as though market volatility took many traders out of the game. Some ran out of money, and others ran out of nerve. Either way, it will likely take several months or even years before speculators make their way back to the markets.
According to a Wall Street Journal story, the Fed has

“spent some $70 billion to buy up mortgage bonds guaranteed by the federal mortgage finance giants, but mortgage rates recently have begun to tick up again. It is a stark reminder of how intractable the problems are that markets face and highlights the limits of even the Fed’s ability to restore normal conditions. Even as the central bank has pledged to buy $500 billion in mortgage bonds by June, equivalent to the year’s expected new supply, the mortgage market is grappling with its increasing dependence on, and the rising complications from, the Fed’s involvement in the market.”

We are still looking for higher prices in interest rate products. I am expecting some follow through buying to bring the March bond to just over 132 and the 10 year note near 125. We see strong resistance in the 5-year note near 119’09, if you participated in the long recommended on this newsletter see exit strategy below.
Feb 1 T-Bond
Feb T-Note
Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.
January 29 – I like selling the March 117 puts for 30 or better, if filled be sure to take a quick profit if the opportunity presents itself!
· Cancel this order
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
January 27 – Buy 1 March 5 year note at or near 118’03
· February 2 – If you are still holding this trade, place an order to sell at 119’01 to take a profit of about $937.50 before commissions and fees (some of you may have taken a quick profit on Friday).
Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.
January 30 – I like buying the March Eurodollar near 98.75 looking for a quick move higher. We don’t expect the March contract to break out of its trading range…and it is a slow move anyway.
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
Local : 702-947-0701


One Response to Treasuries on the Long End of the Curve

  1. siliconpalms February 3, 2009 at 12:52 pm #

    Nice analysis, short and to the point with charts and a couple of good trade recommendations. Info I can use.