March 31, 2011
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Treasury futures on hold for non-farm payrolls
Treasuries were a mixed bag of nuts ahead of tomorrow's key jobs data. The day's action was choppy and indecisive, but our guess that it was it was the result of position squaring in light volume as opposed to anything fundamental.
Initial claims were reported at 388,000; given the multiyear slump in employment anything under 400,000 is considered a victory. Sub 400,000 numbers have become the norm as of late and this leads us to believe this month's number could be a good one. Although ADP was looking for 201,000 added jobs, and consensus estimates are looking for the government reading to be 185,000 we have to lean toward something even better. Can we see 250,000 to 275,000?
If so, there could be a an exhaustion rally in equities and a similar spike low in Treasuries.
The Fed purchased $2.1 billion worth of securities with expirations ranging from 2021 and 2027 through the POMO program, which will be winding down in the coming months....and no, we don't think it will translate into the collapse of Treasuries. The Fed has worked hard to manipulate the markets, they aren't going to simply fold their hand, walk away and ignore the destruction. Markets are forward looking and most of this is probably already priced in. Also, anybody that has traded alongside the Fed likely hasn't done well. Bonds and notes have suffered a bulk of their losses in recent years while POMO was in effect. The rally occurred ahead of POMO both times. Unfortunately, trading isn't as easy as following logic...you have to be able to think outside of the box.
We are sticking with yesterday's (and the day before that) idea:
For now, we will patiently wait for a larger dip to become bullish. If you are trading the 30-year bond, look for support near 118. In the 10-year note this translates into just under 117.
* 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 factored into current prices, any references to such does not indicate future market action.
Treasury Bond and Note Option and Futures Trading Recommendations
**There is unlimited risk in naked option selling.
Senior Analyst / Commodity Broker
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*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.
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