Uninspired Bid in Treasuries

Chaos among the equity indices lured some buyers into Treasuries but the bulls seemed to be a bit timid. It wasn’t until yesterday’s late afternoon trade that the 30-year bond finally made its way well into positive territory.
Despite the positive close, the bond traded nearly a handle in the red this morning following a better than expected ISM report and pending home sales. The ISM manufacturing index was expected to show slight growth near 50.50 but was reported at 52.9. Likewise, construction spending can in flat against analyst expectations for a slight draw. Perhaps the most optimistic of today’s news was a 3.2% increase in pending home sales. In the absence of a stock market plunge, Treasuries may have experience a much different trading session.
The short end of the curve has been outperforming the long and today was no exception. This is true even in the fact of dismal yields on such securities. We have been noting investors quietly flocking toward “quality” and this is another sign of the lack of confidence that the marketplace has in regards to the near-term prospects for the recovery.
We would love the opportunity to be bearish this market, but feel as though any attempts at such are a bit pre-mature. We see resistance in the December bond futures near the mid 121’s but see potential for a spike to 122’22ish. On a weekly chart, there appears to be a thick ceiling near 124. That said, we like the idea of selling calls, buying puts or both as a spread using the October options should the market approach the 122 area. We are wondering if the market may spike higher following Friday’s employment report and this could be a great opportunity to “get short” with futures or options. We will be scanning the markets for ideas.
If you are trading the 10-year note, we have been looking for about 119 in the September contract but in the December our target is about 118. Today’s high of 117’24ish isn’t far off the mark but we would like to respect the rally. I think that there may be a bit more room on the upside. That said, the financial markets made rather large moves today, it wouldn’t be unusual to see some back and filling in tomorrow’s session.
We mentioned yesterday that traders could start looking for a potential reversal in the 5-year note near 117, in the December contract this translates into 115’25 which wasn’t far from today’s highs. Technically, this contract should be getting toppy but bears should recognize that the 10 and 30-year securities may creep a little higher and they could bring the 5-year with them.
You should be trading the December contracts!

**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.
Flat
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
Flat
Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.
June 29 – Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
cgarner@DeCarleyTrading.com
1-866-790-TRADE
Local : 702-947-0701
www.CarleyGarnerTrading.com
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.