Anticipation and the eventual passing of the stimulus package rekindled supply concerns in the Treasury markets. Despite a shorten pit trading session, the electronic contract eventually fell in excess of 3 handles. While these types of price moves have become commonplace, they used to be rare. Nonetheless, traders and analysts seemed to take it in stride as all are looking forward to the extended President’s Day weekend.
The economic calendar was thin and so was volume. My guess is that the recent rally was largely in part of position squaring ahead of the holiday. Accordingly, with many traders on the sidelines the fresh wave of selling had an exaggerated effect.
Traders are questioning whether the demand seen in recent months for government backed securities will continue to be a factor. After all, despite the fact that other asset classes are struggling there are obvious opportunities outside of Treasuries. Investor portfolio re balancing and restructuring will likely work against bonds and notes in the long-run. Additionally, there are rumors that Chinese officials are “shopping” around for alternatives to U.S. Treasuries.
We are sticking to yesterday’s overall outlook:
Although a move to 130’05 is certainly possible at some point tomorrow, I can’t help but feel that this rally will fizzle. Look for a counter-trend Friday theme. The T-Bond may be headed for 123 over the next several weeks. Likewise, if the note turns as we expect we could see 120’25 by March.
Sorry so short, enjoy the holiday weekend!
Treasury Bond and Note Option Trading Recommendations
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Treasury Bond and Note Futures Trading Recommendations
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Eurodollar Futures Trading Recommendations
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Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
cgarner@DeCarleyTrading.com
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