Anticipation over this afternoon’s 30 year bond auction kept yields under pressure (and Treasuries elevated) for much of the trading session. However, the rug was pulled from underneath the market in post-auction trade.
The Treasury issued $12 billion in 30 year bonds at a rate of 4.0009% with a 2.37 bid to cover and an indirect take of 34.5%. It was an average, at best, auction that didn’t quite meet the market’s expectations. Accordingly, following the news the long bond was finally able to retreat to rekindle the inverse relationship between stocks and bonds.
The dollar continues to get crushed but Treasury traders seem to be in denial. Or perhaps, the interest rate markets have forgotten the “rules” when it comes to inter-market relationships.
Don’t forget about the looming seasonal peak in Treasuries. Bonds and notes tend to suffer for a period of two to three weeks from (about) now through late October. From there, traders may want to consider putting their bull caps back on.
In yesterday’s newsletter, we mentioned a possible squeeze ahead of the auction and while we did see some upward action it was relatively subdued. We still favor the short side of this market and are patiently looking for the mid-120’s in the 30-year bond and 118ish in the notes. That said, the notes have held a bit more technical integrity and must break below 118’25 to lure some follow through selling.
If you are following our short call recommendation, things are looking good for now. We will be interested in offsetting these in the coming days with what looks to be a healthy profit…although; we all know that things can turn on a dime.
Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.
October 1 – Our clients were recommended to sell the December Bond 128 calls for 25 or better. (Sorry, there was a typo on the original…it was the 128’s not the 129’s).
October 2 – Those with margin and guts were able to add on to their short call position at better prices. Fills on the 128’s came in at 35 and 23 for the 129’s.
ท October 6 – Those trading multiple lots were advised to peel one off of the table at a profit. The 128 fills were coming in at 19 and the 129’s at 12.
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
Senior Analyst / Commodity Broker
Local : 702-947-0701
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.