Treasury trade has finally moved from lethargic to exciting. After weeks of consolidation, a break out was well overdue and the move didn’t disappoint…except for those on the wrong side of the move.
The initial move upward was triggered by a humble beginning to the equities earnings season and concern over higher Chinese interest rates. Tighter credit in China put pressure on stocks and commodities as well as lured safety bids into bonds and notes.
The higher dollar seems to be a positive for U.S. fixed income products as well. Stability in the domestic currency should help to keep foreign investors holding onto Treasuries. While too much of a good thing could work against Treasuries, the dollar is still relatively cheap and the currency conversion shouldn’t deter fresh longs in bonds and notes.
A solid note auction was just want the complex needed to start the short squeeze. $40 billion in 3 year notes went off at 1.49% and a bid to cover of 2.98 while $26 billion of the 1-years drew .335% and a bid to cover of 3.63. Investors seem to be willing to pay up for short maturities; likely out of fear of higher long-term rates and a questionable recovery. Don’t forget, for those that can hold to maturity risk in fixed income is mild, for those that might be looking for liquidity (the ability to trade in and out throughout the bond life) are facing considerably higher risks.
We have been looking for this rally for quite some time, and true to form the market finally made its moved once most had given up on the idea. It seems likely that a majority of today’s buying was at the hands of buy stop running and panicked shorts. Therefore, a moderate pullback might be seen in tomorrow’s session; however we feel as though the long bond will soon see the mid-118’s. New support is 116’08.
If you are trading the 10-year note, look for support at 116’10 with a target near 117’25ish.
* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. However, market analysis and commentary does. Charts provided by Track ‘n Trade, Gecko software.
**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.
December 28 – Our clients were recommended to sell the March Bond 110 puts for 23 or better.
Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.
Flat
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
cgarner@DeCarleyTrading.com
1-866-790-TRADE
Local : 702-947-0701
www.DeCarleyTrading.com
www.CommodityOptionstheBook.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.
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