The Bond Bulletin By Carley Garner
The Bond Bulletin
by Carley Garner
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2009-07-02
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July 2nd, 2009
If you like this newsletter, you will love "Commodity Options". Look for great deals on Carley's book through Amazon!
Treasuries extend rally, long bond 120?
Painfully light volume and slightly bullish news was all that it took for the Treasury bulls to retest recent highs. A horrid, but better than expected, employment report prompted moderate safe haven buying across the curve but the momentum wasn't as swift as many would have thought given weakness in equities.
The session was plagued with light volume, but that isn't a surprise. Hopes are for a return of liquidity come Monday morning, but my guess is that things will remain quiet until mid-week. That said, we are still in the midst of the summer doldrums and at the tail end of some of the most volatile markets in history. The real trading volume will take several months and maybe even years to return to the marketplace.
Non-farm payrolls were surprisingly close to ADP estimates. Perhaps ADP has gotten better at forecasting...? According to the government, the U.S. economy lost 467,000 jobs last month and the unemployment rate ticked up to 9.5%. It seems that we are well on our way to double digits.
Putting a bit of a pinch on the rally was news of the next round of government issues. The Treasury announced that it will sell $35 billion in 3-year notes, $19 billion in reopened 10-year notes, $11 billion in reopened 30-year bonds and $8 billion of the 10-year inflation indexed notes. Although foreign demand for U.S. issued debt has been strong, investors may be getting "saturated".
It seems as though the long bond is headed toward 120 and should experience a moderate pullback from there. One the same token, we are now looking for a move to the mid-117's in the 10-year note. The 5-year note met our upside expectations and we have now turned bearish.
Yesterday I recommended not trading today, unless you couldn't help yourself. I guess we fell into that category. We had been waiting for weeks for the 5-year note to reach the mid-115's. Clients were recommended to sell futures near 115'15 and buy a protective call at a strike price of 115.5 or 116 depending on how much they were willing to risk etc. In both cases, the trade has limited risk in the amount of the premium paid plus or minus the difference between the futures entry and the strike price the call option. This is a strategy that we covered in our "Trade Like a Girl"
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| Meet the Author |
Carley Garner
Senior Analyst and Broker; Stocks and Commodities Magazine columnist; Author of "A Trader's First Book on Commodities" and “Commodity Options” published by FT Press a division of Prentice Hall.
The Bond Bulletin has contributed 294 issues.
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