Interest Rates Creep Lower

The Fed was at it again, but this time they were buying securities on the short end of the yield curve. The Fed purchased $6 billion in fixed income securities maturing in 2012 and 2013 (the realization that these are now considered short-term debt instruments makes me feel old). At the same time, they auctioned $34 billion in 4-week bills.
It was another data challenged session, leaving market direction up to equity market action and of course the Fed. Traders are noting that there don’t seem to be as many institutional or large spec traders as there have been in years past and this makes the Fed an even bigger “player” than it may otherwise be. On the other hand, the stock indices pared early morning losses, which worked directly against the Treasury rally. It is clear that the near-term direction of bonds and notes will be highly dependent on the path taken on Wall Street. We are still leaning slightly lower in stocks and higher in bonds but remind traders that it is important to be nimble as circumstances are changing quickly.

The U.S. trade deficit widened in March but beat analyst estimates by coming in at a negative $27.6 billion to prevent the U.S. dollar index from a technical rebound and keeping bond buying modest.
Today’s pause makes us wonder whether the bond will find follow through buying to bring it to our 124 target, just under 122 in the note. If you are long this market, we recommend playing it close to the chest as we cannot rule out another run at the lows. If this turns out to be the case, we will once again be looking for ways to gain a bullish stance.
Last week we noted that bonds and notes were both a buy near 120; we hope that you took our advice! No we are suggesting that you lighten the load. We are leaning higher, but the risks have increased and there maybe better opportunities to be bullish in the coming sessions.
May 12 Bond
May 12 T-note
Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.
May 7th – Sell the June 117 puts for 25 or better
· May 11 – This trade was exited near 10 to 12 ticks to take a quick profit
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.
April 30 – Our clients were recommended to sell the June Eurodollar near 98.045
· If you are uncomfortable with the possibility of a retest of the January highs, you can buy a June 99.00 call for about 13 tick to limit your risk on the trade to about $212 before transaction costs
· Keep in mind that this market isn’t far from its all time high, if you are comfortable being short and are properly capitalized you may want to consider adding on if we see a sharp rally.
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
Local : 702-947-0701
*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.


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