Bond Bulls Keep Edge

Treasuries crept higher after an early morning sell-off but the pace was much more subdued that has been in the previous few sessions. The inability of the bears to hold bonds and notes underwater seems to favor continued, yet moderate, gains in the near term.
Despite what appears to be going on in the commodity markets, namely metals and energies, inflation data continues to be subdued. We all know that there are flaws in the manner in which government price pressures are measured but can it be as dramatic as the markets suggest? Treasury traders found solace in the idea of benign inflation by bidding bonds and notes off of the intraday lows in post PPI index trade. The Producer Price Index for last month was measured at a positive .3% as opposed to consensus estimates for .5%.
The Treasury International Capital numbers for September show that net foreign purchase of U.S. long-term securities were $40.7 billion. This is significantly above the previous two readings and suggests that it will take more than low yields to deter those overseas from parking money in low risk Treasuries.
Contrary to what many thought might happen, the low dollar in recent weeks appears to have lured bargain hunters. A discounted greenback allows overseas investors to buy U.S. securities “off the sales rack”, and that seems to be one of the contributing factors to Treasury resilience.
Recent Fed talk in regards to tame inflation has traders focused on the upcoming CPI numbers. Although the expected flat line in price pressure would be supportive for bonds our guess is that the market will have already priced in the news prior to the announcement. Accordingly, we are looking for possible strength in going into the report, and maybe immediately after, but feel as though sellers will come back to bonds by week’s end.
Our objective of just over 121 in the bond has been met, leaving us feeling as though the market is getting a bit toppy. However, there are likely a few stops lining the upside that could bring the bond closer to 122ish. However, we like the idea of getting short-term bearish up here.
The 10-year notes should be facing significant resistance just over 120ish, a reversal could be looming.
Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.
November 15 – Sell the January Bond 125 calls for 20 ticks or better.
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
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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