Moderate pullback in Treasuries

The bid for bonds and notes heading into the weekend faded on Monday, but the day hardly went to the bears. Despite overbought technical action, higher stocks and good economic news, Treasuries suffered only moderate losses.
The equity markets reacted positively to Greek debt bailout developments, but fixed income traders don’t seem to buy into the theory. There seems to be some underlying support in bonds and notes as investors question whether high yielding sovereign debt is worth the risk.
On the economic front, the Institute of Supply Management’s manufacturing index ticked up to 60.3 to suggest growth. Construction spending was also a bit better than most were looking for an increase of .2%
In theory, Treasuries should be finding a seasonal peak sooner rather than later. However, seasonal tendencies are guidelines not rules. Despite normal market behavior, we can’t rule out a dramatic key reversal in which the long bond rallies sharply before putting in an intermediate-term top.
If you are following our short call recommendation, we are a little uncomfortable. Despite the loss per contract being relatively manageable at this point, we feel that the risk of open positions in this market is a little higher than is normally the case. We would like to see a pullback in the long bond to 117ish. If seen, we will likely be in favor of pulling the plug (likely at a moderate profit) on the trade.
In the meantime, we see resistance in the June 30 year bond futures near 119’23 and then again near 121. In the 10-year note this translates into 118’01 and then 118’23.
* 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.

May 3, 2010, bond chart
May 3, 2010 - Treasury note chart
Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.
April 22 – Our clients were advised to sell the July bond 121 calls for 22 or better, and were filled this morning on the rally.
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
http://www.DeCarleyTrading.com
http://www.ATradersFirstBookonCommodities.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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