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The Bond Bulletin

This report has been deactivated

Rocky auction, but Treasuries survive

Thu, Nov 12 2009, 23:30 GMT
by Carley Garner

The yield on the long bond spiked higher to levels not seen since the middle of August on lighter than expected demand in the 30-year auction. The news came after a better than expected reading on weekly jobless claims and seemed to be a great excuse for trade to trigger the long line of lingering sell stops lingering beneath 118 in the 30-year bond.

The Treasury auctioned $16 billion in 30-year bonds at a rate of 4.469% and a disappointing bid to cover of 2.26. The indirect bidder participation rate was 44%. Overall, the week's auctions went well but the hitch in demand for the long bond was temporarily unnerving for the market.

Initial jobless claims are approaching the coveted 500,000 mark; this weeks' new claims were 502,000. Continuing claims are also on their way down, the latest reading was 5631k.

Now that the market has gotten the massive supply out of the way and the uncertainty of the 30-year auction, the next move could be higher. We had been looking for a "flush" of the longs that would bring the long bond "closer to 117" and provide a bullish opportunity that we could feel good about and we got it. Unfortunately, the move happened quickly making it difficult for many to have gotten off their trades before the massive rebound. Unfortunately, it takes more than a good idea to make money in the markets. I hope that some of you were able to capitalize!

We can't help but feel like the next move will be higher in the 30-year bond futures. Now that many of the weak longs were stopped out, they might try to chase the market higher. Look for resistance in the mid-119's but we think that 120'21 is in the cards.

Notes, on the other hand, have been outperforming bonds and might not have as much room to move on the upside. It seems like the mid-119's will be first resistance but 120 could be possible.

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Thu, Nov 12 2009, 23:30 GMT

Pre−Fed volatility non−existent

Wed, Nov 4 2009, 23:16 GMT
by Carley Garner

DeCarley Trading

It was a long day for bond and note traders. The futures markets traded painfully sideways in anticipation of the FOMC interest rate decision. At times it was difficult to determine whether my quote board was frozen with the long bond at 118'22 or if it was just that quiet.

Prior to the Fed, the market was faced with bearish news. The Treasury announced that it will be auctioning another new record issuance in notes and bonds next week. Specifically, they will be selling $40 billion in 3-year notes, $25 billion in 10-year notes and $16 billion in 30-year bonds. The auctions will take place on Monday, Tuesday and Thursday respectively. Also keeping bond bulls under wraps is a resilient equity market. On the other hand, the ISM index was a little worse than expected but was still in growth territory.

As expected, the Fed chose to leave the overnight target rate at near 0 and they also noted that they intend to keep rates "exceptionally low for an extended period". The news was relatively expected and seemed to give bond traders the green light to price in the recent (bearish) economic news.

We have mentioning an overall neutral bias in the near-term but seasonals are still pointing higher. Accordingly, today's dip might eventually create an attractive buying opportunity. Our original support level in the 30-year bond was 117'15 or so; therefore, we will wait to see if such prices or lower print tomorrow. We will be shopping for bullish opportunities tomorrow, but given the employment report looming on Friday we might choose to risk missing a trade as opposed to jumping in front of what could be a freight train.

Look for the notes to decline to the 117 area; at these price we think that the 10-year begins to look attractive.

* 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.

October 15 - Yesterday afternoon, our clients were advised to sell puts against a possible Thursday plunge. We recommended to sell the December T-bond 112 and 113 puts for 20 and 26 ticks respectively, or about $312 and $406 before commissions and fees.

October 20 - Our clients were recommended to exit the 112 puts near 6 ticks and the 113 puts near 8. Fills on the 113 puts were coming in at 9, we recommended to make the 6 tick buyback on the 112's GTC. Those that still have a short 113 put open, we recommend a GTC order to buy it back at 9 or 10.

• These orders have all been filled, you should be out of this trade.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Wed, Nov 4 2009, 23:16 GMT

Supply, supply...supply

Tue, Oct 27 2009, 01:05 GMT
by Carley Garner

DeCarley Trading

Treasury bulls took it on the chin again today despite spiraling equities. Another record Treasury auction has buyers in remission. The government will be putting $116 billion in securities ranging from 2 to 5 year notes throughout the week. Today saw the re-open of $7 billion in 5-year TIPS, which were met with surprisingly strong demand and a lower than expected yield. Treasury traders seemed to view the high demand for TIPS as confirmation of inflation concerns resulting from monetary and fiscal policy.

The U.S. dollar index recovered considerably on the day, sending the Euro sharply lower. Going into last week, we were calling for a reversal in all of the financial markets. Stocks were the first to roll over, currencies seem to be in the midst of an attempt to reverse the trend and Treasuries should be the last to go. We can't rule out one more probing low in bonds and notes but feel as though the recent dip is an opportune time to be a bull.

Although the flight to quality bid was nowhere to be found in today's session, it could reemerge should equities continue their slide. The S&P, along with the other major indices, appear to be at a crossroads but in the case of broken near-by support the market could suffer another bout of aggressive selling.

Because of this, and seasonal tendencies in favor of Treasury trade, we prefer to play the long side of this market for now. Coming into the day, we were looking for just above 118 in the 30-year bond; it now seems as though the mid-117's are possible. Similarly, 117 is supportive in the notes but a move to the mid-116's is probably on the horizon. However, we are leaning higher from here.

* 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.

October 15 - Yesterday afternoon, our clients were advised to sell puts against a possible Thursday plunge. We recommended to sell the December T-bond 112 and 113 puts for 20 and 26 ticks respectively, or about $312 and $406 before commissions and fees.

October 20 - Our clients were recommended to exit the 112 puts near 6 ticks and the 113 puts near 8. Fills on the 113 puts were coming in at 9, we recommended to make the 6 tick buyback on the 112's GTC. Those that still have a short 113 put open, we recommend a GTC order to buy it back at 9 or 10.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Tue, Oct 27 2009, 01:05 GMT

Mixed news, oversold bounce

Sat, Oct 17 2009, 00:18 GMT
by Carley Garner

DeCarley Trading

Treasuries were slightly bid following a worse than expected University of Michigan consumer sentiment reading but hints of inflation kept the rally in check. Also capping gains, the net long-term capital inflow of investment dollars into government backed securities was a bit on the light side.

The Net foreign purchases of long-term securities were $28.6 billion; analysts were looking for $30 billion. The amount of foreign buying interest in the face of a weak dollar has surprised many but it suggests that overseas investors are seeing currency valuations as a bargain rather than a risk. I tend to agree that with the greenback at multi-month lows, it seems as though the path of least resistance will eventually be higher. I can't argue that dollar fundamentals aren't weak, but I also feel as though the fundamentals backing the other major currencies are equally as troublesome. If this assumption is true, it will be supportive for the long bond and notes.

Treasuries have fallen rather sharply in recent weeks and were due for a technical bounce. Whether or not the day's moderate gains will turn into something more will be highly dependent on the behavior or equities in a post option expiration world. It is hard to determine if stocks were being buoyed by expiration or if it was actually holding back the rally. Our gut tells us that we will see lower stocks and higher bonds at some point next week.

Here is a similar prediction made by some of our friends on the floor with DT Trading http://www.youtube.com/watch?v=lVTpvR0fCEY. DT is a specialist that we use the one CME floor to execute open outcry positions for our clients and they have always had a knack for the markets as well as the ability to provide efficient fills.

We are still a bit mixed when it comes to our sentiment in regards to the Treasury complex. The 30-year has come close to reaching our downside projections but the note has not. However, we are going to continue to assume that the long bond is leading the short end of the curve and will lean higher. That said, the follow through buying this morning was disappointing so any bullish position should be played close to the chest.

We are showing support in the 30-year bond near 118'15 and again at 118'03, our first resistance will be near 120'13. Note traders can look for support near 117'19 then again just under 117. Resistance lies at 118'11 then 119'02.

In yesterday's newsletter we boldly predicted a reversal in all of the financial markets (Treasuries, stocks and currencies). Today wasn't the day, and tomorrow might not be either but we feel like such a scenario could happen by as early as next week.

* 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.

October 15 - Yesterday afternoon, our clients were advised to sell puts against a possible Thursday plunge. We recommended to sell the December T-bond 112 and 113 puts for 20 and 26 ticks respectively, or about $312 and $406 before commissions and fees.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Sat, Oct 17 2009, 00:18 GMT

Bonds beaten down

Fri, Oct 9 2009, 23:52 GMT
by Carley Garner

DeCarley Trading

The long end of the yield curve led Treasuries dramatically lower on the day on light volume ahead of the holiday. Just when many were looking for the 10-year note to kiss 3%, we ended up getting closer to 3.5%. We have been bears over the last week or so but I have to admit that the accelerated selling in the 30-year exceeded my expectations. The yield on the long bond jumped from about 4% to 4.25% in a matter of hours.

The day's weakness wasn't necessarily a surprise but it was an odd delayed reaction to this week's fundamental events. When you take a step back and look at the big picture, Treasuries should have suffered earlier in the week at the hands of stronger equities and a weaker dollar...but they didn't.

Keeping with Friday's theme, it seems as though the bonds may have a bit of catching up to do and could make their way down to the mid-118's before finding an intermediate-term low. However, a technical bounce seems likely given the size and speed of the drop as well as the fact that notes have, thus far, held our support area of 118.

Our clients were recommended to exit any short bond calls to lock in a profit on the trade and are now safely on the sidelines. Fills on the 128's were coming in from 10 to 8 ticks. Assuming a sell price of 25 and a buyback of 9 the trade was profitable by $250 per contract before commissions and fees. Of course, there are ways to be much more aggressive in playing this market such as option spreads, futures, or a combination of the above. If you are interested in working with us to put together a strategy that fits your personality, let us know. We would love to hear from you.

We came into the day looking for the mid-120's in the 30 year and the market fell right through it. On the other hand, we had been looking for 118'ish in the notes and support held nicely. Going into next week (and the Columbus Day holiday) we are on the fence. My best guess is that we could see a bit of a bounce them possibly resume the down move. However...I wouldn't take this ramble too seriously. We will get a better idea of what might be to come on Tuesday.

* 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.

October 1 - Our clients were recommended to sell the December Bond 128 calls for 25 or better. (Sorry, there was a typo on the original...it was the 128's not the 129's).

October 2 - Those with margin and guts were able to add on to their short call position at better prices. Fills on the 128's came in at 35 and 23 for the 129's.

• October 6 - Those trading multiple lots were advised to peel one off of the table at a profit. The 128 fills were coming in at 19 and the 129's at 12.
• October 9 - Clients were advised to liquidate their remaining short calls. Fills ranged from 10 to 8 ticks.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Fri, Oct 9 2009, 23:52 GMT

The highs could be in

Thu, Oct 8 2009, 23:25 GMT
by Carley Garner

DeCarley Trading

Anticipation over this afternoon's 30 year bond auction kept yields under pressure (and Treasuries elevated) for much of the trading session. However, the rug was pulled from underneath the market in post-auction trade.

The Treasury issued $12 billion in 30 year bonds at a rate of 4.0009% with a 2.37 bid to cover and an indirect take of 34.5%. It was an average, at best, auction that didn't quite meet the market's expectations. Accordingly, following the news the long bond was finally able to retreat to rekindle the inverse relationship between stocks and bonds.

The dollar continues to get crushed but Treasury traders seem to be in denial. Or perhaps, the interest rate markets have forgotten the "rules" when it comes to inter-market relationships.

Don't forget about the looming seasonal peak in Treasuries. Bonds and notes tend to suffer for a period of two to three weeks from (about) now through late October. From there, traders may want to consider putting their bull caps back on.

In yesterday's newsletter, we mentioned a possible squeeze ahead of the auction and while we did see some upward action it was relatively subdued. We still favor the short side of this market and are patiently looking for the mid-120's in the 30-year bond and 118ish in the notes. That said, the notes have held a bit more technical integrity and must break below 118'25 to lure some follow through selling.

If you are following our short call recommendation, things are looking good for now. We will be interested in offsetting these in the coming days with what looks to be a healthy profit...although; we all know that things can turn on a dime.

* 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.

October 1 - Our clients were recommended to sell the December Bond 128 calls for 25 or better. (Sorry, there was a typo on the original...it was the 128's not the 129's).

October 2 - Those with margin and guts were able to add on to their short call position at better prices. Fills on the 128's came in at 35 and 23 for the 129's.

• October 6 - Those trading multiple lots were advised to peel one off of the table at a profit. The 128 fills were coming in at 19 and the 129's at 12.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Thu, Oct 8 2009, 23:25 GMT

Key reversal?

Fri, Oct 2 2009, 21:15 GMT
by Carley Garner

DeCarley Trading

It has been an exciting week for Treasury traders and I think that I speak for all when I say that the weekend couldn't come soon enough. Bond and note bears suffered from buy stop running and the subsequent short squeeze on Thursday and in early trade on Friday. However, the momentum quickly subsided as it seems as though the last of the bears were out and the last of the bulls were in. When this happens, the market simply runs out of buyers and retreats. Similar, but opposite, price action was experience by the major stock indices.

The story of the day was the government's latest read on the employment picture. The September unemployment rate came in at 9.8% and the non-farm payrolls came in at a decrease of 263,000 jobs. Analysts were looking for a number under 200,000 so the miss was a catalyst for Treasuries to rally and stocks to decline. In brighter news, factory orders fell less than analyst estimates.

It is difficult to find anything positive in the employment report, but you have to account for the fact that much of the news was already known. After all, ADP suggested that this would be the case...although, their track record is questionable they managed to get this one right.

While it was a bit uncomfortable this morning, we still like the prospects of our short bond call recommendation. In fact, those with available margin and nerves of steel were able to add to their position at much better prices. We were getting fills back on the 128's for about 35 and near 23 for the 129's.

Yesterday we mentioned that the note seemed to be looking for 120, and today's high of 119'29 is close enough for me. From here we can't help but be bearish. Should stocks stabilize, we should see the note drop to just under 118 and the bond could see the mid-120's.

Check out this video made by our friends at DT Trading. They are our go-to guys for open outcry execution in CME/CBOT products and have a great feel for the markets. They will soon be providing an intraday commentary service to subscribers. I'll keep you posted!

http://www.youtube.com/watch?v=nOG1_I0i94E

* 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.

October 1 - Our clients were recommended to sell the December Bond 128 calls for 25 or better. (Sorry, there was a typo on the original...it was the 128's not the 129's).

October 2 - Those with margin and guts were able to add on to their short call position at better prices. Fills on the 128's came in at 35 and 23 for the 129's.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Fri, Oct 2 2009, 21:15 GMT

Treasuries waffle ahead of data

Wed, Sep 30 2009, 01:27 GMT
by Carley Garner

DeCarley Trading

A surprise drop in consumer confidence reversed early morning weakness in Treasuries but the bulls struggled to keep momentum. While the recent trend has been higher, bonds and notes face significant resistance.

According to the Conference Board, their confidence index fell to 53.1 in September after posting 54.5 in August. Analysts were expecting an increase to 57. Consumer confidence levels are near the worst levels since the early 1990's. The negative news from the Conference Board overshadowed a better than anticipated Case-Shiller Housing index. According to the index, July marked the 6th consecutive increase in home prices.

Event risk remains elevated throughout the week, so it seems reasonable to expect an increased amount of volatility and fickle trade. We tend to believe that the Treasury market will be finding a relatively meaningful high in the coming week or weeks. The seasonal tendency in this market is for a downturn in early October that lasts approximately three weeks.

Thus far our primary resistance areas of 121'27 in the long bond and the mid 118's in the note, have held. While we prefer the downside, we still acknowledge that there is risk of a spike to 123ish in the 30-year bond and 120 in the note.

Our clients were recommended to sell the December 129 calls for about 20 ticks, but it just wasn't meant to be. The high of the day was 19 and some even tried to adjust the price a bit lower but weren't able to get a fill. We will be working the same order tomorrow but it may be necessary to adjust strike price and premium.

Of course, it is possible to get much more aggressive with this. One idea would be to sell a much closer strike price and another would be to use the proceeds of a short call to purchase a long put.

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations **There is unlimited risk in trading futures.

Flat

Of course, it is possible to get much more aggressive with this. One idea would be to sell a much closer strike price and another would be to use the proceeds of a short call to purchase a long put.

**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.

Flat

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

Published on Wed, Sep 30 2009, 01:27 GMT

Countertrend Friday but Monday may be more telling

Fri, Sep 18 2009, 20:22 GMT
by Carley Garner

DeCarley Trading

Trading volume was nearly non-existent. It almost felt as if the markets were closed for a holiday...but they weren't. I can't say that I blame traders for taking the day off, there was very little guidance during the session. In the absence of economic data, the Fed's purchase of $4.047 billion in Agency debt seemed interesting.

The greenback showed some signs of life, but the gains were minor relative to recent losses and weren't enough to impact the surrounding financial and commodity markets. The dollar gains appeared to be position squaring ahead of the weekend as opposed to actual long interest but this could change if we see some follow through on Monday. Naturally, a stronger dollar should keep Treasuries in favor.

We have been noting the 119'10 pivot in the long bond, and today's early low of 119'12 and subsequent grind higher suggests that the overall sentiment is slightly bullish to neutral. Traders seem to be reluctant to be overly Treasuries before getting a better feel for equities, specifically whether or not they will correct going into next week. We happen to feel as though despite the never-ending bull run in stocks, a pull-back is near. Assuming that we are right about the near-term direction of stocks, we could see bonds trading closer to 122 by early next week. If we are wrong about stocks, bonds may retreat to 117'24. Similarly, our upside target in notes lies at 118'15 and maybe as high as 119 should stocks falter.

Sorry so short, not much to talk about...Have a great weekend!

* 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.

September 11- Our clients were recommended to sell the November 128 calls for 18 or better, we are now trying to buy them back for 5 or better to lock in a quick profit of about $200 per contract before commissions and fees.

September 15- Our clients were recommended to change their orders to 6 and were getting filled.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Fri, Sep 18 2009, 20:22 GMT

Bonds may be pricing in stock correction

Thu, Sep 17 2009, 23:39 GMT
by Carley Garner

DeCarley Trading

I will keep this short and sweet as we are preparing for today's webinar with the New York Institute of Finance (I hope to see you there).

The bond market seems to be preparing for a correction in equities, but whether or not it will materialize is still unknown. An unprecedented amount of sidelined cash making its way to the markets has enabled one of the largest and swiftest bull moves in stock market history. However, judging by the refusal of bonds and notes to retreat there seems to be a disagreement between stock and Treasury traders in regards to the economic recovery that has yet to be resolved.

Historical stats suggest that stocks do well in early September but fall short later in the month and bond traders haven't forgotten. From a technical standpoint, we came into the day virtually neutral bonds and notes but today's strength seems to point toward another rally. However, it will take equity weakness to keep the momentum going. We still haven't given up on the possibility of a rally to 122 in the long bond and 119 in the notes and if we are right about a stock market correction by early next week, Treasuries could hit our upside targets.

Sorry so brief!

* 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.

September 11- Our clients were recommended to sell the November 128 calls for 18 or better, we are now trying to buy them back for 5 or better to lock in a quick profit of about $200 per contract before commissions and fees.

September 15- Our clients were recommended to change their orders to 6 and were getting filled.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Thu, Sep 17 2009, 23:39 GMT

Treasury rally on pause

Tue, Sep 15 2009, 00:55 GMT
by Carley Garner

DeCarley Trading

Bonds and notes took a much needed breather on Monday. It is easy to forget that this rally is 5-weeks old but at this stage some consolidation is necessary. However, the selling was tame and the volume light; this makes me feel as though this correction will eventually become another buying opportunity. Something tells me that the bulls aren't giving up so easily.

We often note seasonals in this newsletter and have pointed out the reversal that is often seen in late September to early October. If Friday's spike high was also the trend reversal then the seasonal top came early. Perhaps this is the case, but I doubt it. There is still a considerable amount of pessimism surrounding the economic recovery, the health of the equity rally and, at least for now, Treasury demand remains strong.

Supplies are large, but the market knows this. The next piece of supply info for the market to chew on will be the Treasuries auction announcement on Thursday. Next week, the government will auction notes in the two to five year space. The previous issuance of such securities took place in August and the market absorbed $109 billion worth of the notes without much of a hitch.

Some of today's selling may have been a delayed reaction to weakness in the greenback. As weak as the U.S. dollar has been, I believe that a majority of the selling has already occurred. A possible reversal in the currency markets could support the Treasury rally.

On Friday we recommended that our clients sell bond calls into the rally, most sold the November 128 calls for 18 ticks. As it turns out, things have gone relatively well with this trade thus far. However, we would like to take advantage of the dip and will be interested in looking to buy them back shortly. We have recommended that they place GTC orders to buy them back at 5 or better, but we might look to adjust the price accordingly.

In the meantime, it seems as though the 30-year could trade as low as 119'09 before finding support and the 10-year note could see 117ish. At such levels we will be relatively neutral with a bullish bias. We still think that our 122 and 119 initial targets in bonds and notes respectively are a real possibility. Don't forget about our secondary targets of 124 and 121.

* 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.

September 11- Our clients were recommended to sell the November 128 calls for 18 or better, we are now trying to buy them back for 5 or better to lock in a quick profit of about $200 per contract before commissions and fees.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Tue, Sep 15 2009, 00:55 GMT

Stocks and bonds rally....together?

Fri, Sep 11 2009, 00:18 GMT
by Carley Garner

DeCarley Trading

A weaker dollar and rallying equities weren't enough to put a cap on bond and note buying. A better than expected auction of 30 year bonds along with an overall bullish bias on the day resulted in a two handle rally. The pace of the reversal likely caught many bears on the wrong side of trade and the squeeze had little mercy.

It is a little unusual to see stocks and bonds moving in tandem but that is exactly what we are seeing. Impressive demand for the $12 billion in reopened 30 year bond issues gave Treasury bulls confidence in near-term demand for the securities. Likewise, it gave stock traders some hope in the Fed's ability to finance its massive balance sheet. The auction went off at 4.238% but the futures market brought the yield well under 4.20% by the day's end.

The greenback continues to struggle but Treasury traders aren't paying attention. The U.S. dollar index is trading at its lowest level in a year but it hasn't really weighed on interest rate products as it should. This either signals underlying strength or is simply the result of holiday trade and a fickle market.

Even more surprising was the interest rate market's snub of Treasury Secretary Geithner's pledge of a recovery and the resulting bank repayment of rescue funds. However, the market focused on the negative comments and overlooked the positive (this is in contrast to the equity market interpretation of the same information).

We feel as though bonds and notes have some room to move on the upside but today's move was a bit irrational and the seasonal top is looming. Look for resistance in the December 30-year near 122 with the possibility of a move to 124. Notes seem to be on their way to 118'5 but could see the closer to 121 should things get "out of hand". We like being bearish this market at noted levels. Stay tuned for details.

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Fri, Sep 11 2009, 00:18 GMT

Long−bond uch'd

Wed, Sep 9 2009, 00:58 GMT
by Carley Garner

DeCarley Trading

Treasury traders must have stayed on holiday and I can't say that I blame them. Today was a slow news day and provided little incentive to come back to work following the last three-day weekend of the summer.

On the other hand, the Fed was back at it today. They purchased $4.95 billion of the $14.486 billion in bonds offered by dealers. However, the market was pre-occupied with another record-breaking week for auctions.

Optimism over the auctions kept the short end of the yield curve above water but the long end suffered in early morning trade as investors mull over the boatload of supply coming down the pipeline. The Treasury auctioned $38 billion in 3-year notes today along with $29 billion in both the 3 and 6-month bills...and that is only the beginning. the Treasury will sell re-opened issues of 10 and 30 year fixed income securities over the next few days.

We have pivotal support in the 30-year in the mid-118's and so far it appears to be holding. Our chart-work suggests that that the long bond is gunning for 122 resistance but we wouldn't be surprised to see 124ish at some point in the next week or two. However, should we get there we would be highly bearish. In the meantime, we will wait for what we feel is a good opportunity to be involved. If we are wrong, and the market breaks and holds below 118'10 the next stopping point will be 116.

10-year notes never reached our upside target of 119, but they may be on their way. We see first resistance near 118'15 and will likely turn bearish at such levels.

Our idea to be a seller in the 5-year note near 116 turned out to be a good one, but we think that the market could be headed for 116'08ish from here.

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Wed, Sep 9 2009, 00:58 GMT

Treasuries on the move after ADP estimates

Thu, Sep 3 2009, 01:05 GMT
by Carley Garner

DeCarley Trading

Traders are beginning to position themselves ahead of Friday's employment report and if the ADP's estimates have any merit the news could be slightly bullish. The question of whether or not gains will be sustainable is yet to be answered.

While ADP's predictions got off to a rocky start, they are getting progressively more accurate. This time around they are guessing that the U.S. economy has lost nearly 300,000 jobs despite analyst expectations for closer to 250,000. Today's productivity and factory orders reports were also supportive for bonds and notes.

Tomorrow we will hear about the "other" ISM index on services and initial claims; however, all eyes are on Friday. Given the ADP prediction, the market seems to have priced in a dismal number so it may take a considerably worse reading to force the rally higher. If it happens, I will likely be looking for subsequent weakness going into the weekend.

It is important to note that the U.S. dollar is playing a part in Treasury trade. The September dollar index has been stuck in a rut for weeks and if things don't change this could hinder the upward momentum in Treasuries.

Our upside target and potential near-term reversal point in the 30-year bond lies at 121'17 in the December contract (the market was fast approaching this as I was typing). As Friday approaches, I am favoring a strategy of becoming bearish post-employment report should we see a sharp rally. If you are trading the note, you may want to be similarly bearish near 118'08 in the December contract.

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Thu, Sep 3 2009, 01:05 GMT

Treasuries digest

Fri, Aug 28 2009, 00:41 GMT
by Carley Garner

DeCarley Trading

A better than expected GDP report and a late session rally in equities prevented Treasuries from reacting positively to a strong 7-year note auction. Additionally, a sharp and sudden decline in the greenback kept bonds and notes under pressure during afternoon trading.

The U.S. government sold $28 billion in 7-year notes at a rate of just over 3%. The bid to cover was a healthy 2.74 and foreign buyers seemed to be present given the 621.2% indirect bidder rate. The market seems to be torn between the massive supply and nearly as impressive demand for the securities.

Friday on a light volume week such as this is a tough call. Our upside projection in the 30-year was 121, with potential for 121'24, coming in and today's high of 121'07 was in the vicinity. This leaves us on the fence in regards to tomorrow...However, we would prefer to see a continuation of the rally to just under 122 as we think that this could be a good opportunity for a short-term bearish trade.

The note rally has been a bit lethargic, have been calling for the mid-118's again but still think that 119 is in the cards at some point. However, it is difficult to determine whether they will continue higher from here or pull back to just under 117 before resuming the up-trend. After all, today's high wasn't terribly off of our expectation and that may have been all the market has in it for now.

Don't forget that the CME Group is officially changing the minimum tick size in the 30-year futures contract to 1/32 from 0.5/32 beginning Sunday night. The change will not impact any other Treasury futures, nor will it change the way that bond options are quoted. If you recall, this is the original format of the contract and the change is likely being welcomed by open outcry traders. The exchange is asking that all GTC orders be canceled by customers, otherwise they will be automatically canned. GTC orders can then be re-established following the Sunday night open.

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Fri, Aug 28 2009, 00:41 GMT

Auctions on tap

Wed, Aug 26 2009, 01:02 GMT
by Carley Garner

DeCarley Trading

Treasuries traded on both side of unchanged but ultimately moved the higher on the day. Despite overnight buying in bonds and notes, concern over the 2-year note auction and higher equities dragged government backed fixed income products into the red prior to the auction results. However decent demand, from both on and off shores buyers, seemed to have kept bonds in favor for now.

The Treasury auctioned $42 billion in 2-year notes with a draw of 1.119% and a 2.68 bid to cover; the indirect bidder take was 49.4%. The borrowing cost was a little higher than the Fed had expected but it seems as though investors are still hungry for the securities.

Consumer confidence beat the street's expectations. The index was reported at a 54.1, much higher than the previous 47.4 and the expected 47.9. Likewise, the S&P/Case-Shiller Home price index saw a less than expected decline of 15.44%. As has been the case, the not-so-bad data has enabled bonds and notes to creep higher but has hasn't provided any reason for a break out of the current trading range.

Markets don't like uncertainty, and concern over a Bernanke replacement seem to have been put to rest. The Obama administration announced that Ben Bernanke will keep his position as Fed Chair. The news seemed to have stabilized the markets somewhat.

Both Treasuries and equities have fallen victim to the summer doldrums. Excessively weak volume will likely plague the remainder of this week and encompass all of the next two. Don't forget about the Labor Day holiday on the 7th in which U.S. markets will be closed.

We believe that equities could be getting a bit toppy in the near term, if this is true a 2 to 4 day correction in equities could feed another Treasury rally. Assuming we are right, we could see the 30-year retest the recent highs near 121 and the note back to the mid-118's. Likewise, the 5-year note could be headed toward the mid-116's. Support could be found near 118, 116'20 and 115'10 respectively.

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Wed, Aug 26 2009, 01:02 GMT

Overnight rally but counter−trend Friday

Fri, Aug 21 2009, 21:14 GMT
by Carley Garner

DeCarley Trading

Higher stocks and better than expected existing home sales were too much for the Treasury market bulls. Despite an overnight attempt at a rally, counter-trend Friday ensued and it seems as though the near-term trend may have reversed its course. We are looking for continued weakness in bonds and notes over the next few trading sessions.

Traders have been tabbing the housing market for clues into the recovery simply because that seems to be the source of the economic misery. Accordingly, news of the existing home sales figure coming in at 5.24 million was enough to stop the bond bulls in their tracks. Consensus estimates were looking for 5.00 million and the previous reading was 4.89. Naturally, the number doesn't account for the fact that many sales are the result of heavy discounting. Nonetheless, inventory is moving and that is a positive.

The Fed bought $5.605 billion of the $11.209 agency debt offered by dealers on the day but the big news coming out of the Fed was Bernanke's speech in Jackson Hole Wyoming. According to the Fed Chair, the global economy is starting to emerge from recession and the "fears of financial collapse" have receded substantially. Nonetheless, he expects the recovery to be "slow at first".

Coming into Friday, we were looking for one more extension of the rally slightly above 121 in the long bond and 119ish in the notes. The overnight rally didn't quite reach our targets, but it was close enough for the market. I believe that the 30 year bond will likely correct to the mid-117's in the coming sessions. If I am right about the bond, the note should see the mid-116's. The five-year note could find support near 115.

Unfortunately, we missed our opportunity to sell calls this time around. We have been working orders to sell the October 126 calls for 23 over the last three days, but it wasn't meant to be. We will wait for another opportunity to do so.

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Fri, Aug 21 2009, 21:14 GMT

Treasury bull getting tired?

Thu, Aug 20 2009, 01:05 GMT
by Carley Garner

DeCarley Trading

A weak overnight session in equities paved the way for a continuation of the safety bid in Treasuries. However, as the trading volume faded so did prices. At the time of the day session close, the long bond was nearly a handle off of its early morning high.

The U.S. dollar suffered a similar decrease in interest in the "flight to quality "trade which worked against Treasuries. The September dollar index was trading near 78.53 at the 3 pm Eastern close of the official day session and seemed to remove much of the bullish bond sentiment.

The Fed's continues to burn holes in its pockets as it spends the remaining allocated funds to the Treasury buyback program. The Fed purchased $2.599 billion of the $13 billion plus being offered by dealers with maturities ranging from the early to mid 2020's.

Today was a slow news day, but tomorrow should be a bit more exciting on the data front. The weekly jobless claims is normally a second tier report but has been getting a lot of attention (and a decent reaction) lately. That will be released first think in the morning and a little later will hear about the Philly Fed and leading indicators.

We have been looking for a rally in the long bond to 121, and possibly a bit higher. This morning's high of 120'24.5 was extremely close and leaves me wondering whether or not the near-term highs are in or if there will be another run to our secondary target near 121'20ish. Similarly, we have been calling for the 10-year note to see 119 before turning around and although this morning's rally was a respectable effort, it failed to reach our target. Accordingly, we are cautiously bearish from these levels.

Going into tomorrow, we will be looking for an opportunity to sell call options against strength. Perhaps the October 126's in the 30-year...stay tuned.

I apologize for not sending out a newsletter yesterday, I have been swamped with the production of my second book "A Trader's First Book on Commodities", which is now listed on Amazon. If you haven't picked up a copy of the first, "Commodity Options", it is also available on Amazon at a great price!

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Thu, Aug 20 2009, 01:05 GMT

Tepid inflation sparks bond and note rally

Fri, Aug 14 2009, 23:35 GMT
by Carley Garner

DeCarley Trading

Signs that consumers are doubting the fate of the economy and news of stagnant inflation turned on the green light for Treasury buying. In addition, the lack of evident price pressures ensures that the Fed will remain on hold when it comes to monetary policy.

Core CPI was reported to be exactly flat despite analyst expectations for a slight increase but the headline number did suggest that prices ticked slightly higher last month. The news wasn't necessarily Treasury bullish but it does alleviate some inflation concerns motivating the bears...at least for another month. However, the University of Michigan Sentiment dropping nearly three points from last month was a large disappointment and undeniably supportive to bonds and notes.

Helping price move higher, the U.S. dollar is holding its own against the Euro and the Pound. It seems logical that bonds and notes move together as they both represent, in some form or another, flight to quality interest. However, gold has been struggling to maintain such composure.

Coming into the session we were looking for a continuation of the rally to 118'22 and 117'20 in bonds and notes respectively and some type of afternoon weakness. We now realize that our targets were overly conservative but overall the day's trade was relatively characteristic of a Friday.

Light volume and week end trade makes Monday a difficult speculation. We are looking for the long bond to see 121 again sometime soon but we can't rule out a retest of 117 before the surge higher continues. Likewise, we think that 119 is possible in the note but wouldn't chase the markets higher. Look for weakness to the mid-116's. That said, we will likely be short-term bearish should our upside targets be met.

Futures traders, keep in mind that just because we don't put daily recommendations out on this newsletter doesn't mean that we can't help you with different and/or more aggressive strategies!

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Fri, Aug 14 2009, 23:35 GMT

Warming up with the 3−year auction

Wed, Aug 12 2009, 00:07 GMT
by Carley Garner

DeCarley Trading

After a slow start to the news week, traders were able to gnaw their teeth on this afternoons 3-year note auction. However, with the 10 and 30-year auctions and the FOMC interest rate decision looming, the market is bracing itself for volatility.

Today's auction went relatively well; $37 billion in 3-year notes were met with a bid to cover of 2.89 and a lower than expected yield of 1.78%. Additionally, foreign buyers stepped up their game; the indirect bidder participation was 62.5%.

Much of the recent buying can likely be attributed to short covering ahead of event risk but that doesn't mean that the move won't continue. I don't see any significant resistance in the long bond until 118'18 but 121 doesn't seem unlikely in the coming week or so. I have been noting seasonal strength during this time of year and caution that fundamentals are often overlooked. Accordingly, traders should hold an upside bias. That is not to say that the short side of the market is off limits, but traders must be patient in their entry to reduce the odds of being caught off guard. Meanwhile, the mid-116's are pivotal for the note. It will likely take a close above 116'18 to keep the bulls in control of the immediate future. Next resistance lies at 117'20.

Futures traders, keep in mind that just because we don't put daily recommendations out on this newsletter doesn't mean that we can't help you with different and/or more aggressive strategies!

I apologize for the brevity, but I am a bit short on time. My second book is in the production stage and it has me working around the clock. I figure that if the markets don't have to sleep, neither should I!

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Wed, Aug 12 2009, 00:07 GMT

"Less bad" jobs data, weaker Treasuries

Sat, Aug 8 2009, 00:46 GMT
by Carley Garner

DeCarley Trading

Treasury yields soared following a better than expected employment report. Once again, the yield in the 10-year note seems to be approaching 4% and the 30-year bond reached the 4.64% area.

Although the job losses experienced last month would have been considered a disaster a few years ago, it seems like a blessing today. The change in non-farm payrolls came in at a negative 247,000 as opposed to the expectations of a 325,000 decline. As bad as the numbers are, they are a far cry from the loss of 600,000 plus suffered earlier this year. The unemployment rate also improved to 9.6%.

Also pressing on bond and note prices, President Obama claimed in a speech earlier today that the worst may be over. It didn't seem to add to the day's losses in Treasuries but it did fend off any chances of a recovery. Nonetheless, while the bond market was a bit reluctant to take the President at his word, equities had faith in the idea.

Next week will be data intensive. We will hear the most recent inflation figures, trade balance, retail sales and consumer sentiment.

Yesterday we mentioned the idea of an early morning sell-off on the announcement followed by a recovery. However, trade became heavy on the numbers and never recovered. On the other hand, the equity rally remained firm and remains highly directional. This may point toward some follow through of Friday's move into early next week. Therefore, although our objectives of just under 115 in the note, under 114 in the 5-year and the mid-114's in the 30-year bond (almost), it seems as though there may be a little room for the market to move on the downside. We would like to wait until Monday to see how things play out but in the meantime the next support lies at 113'20 in the long bond and 113'14 in the note.

Have a great weekend!

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Sat, Aug 8 2009, 00:46 GMT

Choppy trade builds suspense over non−farms

Thu, Aug 6 2009, 01:01 GMT
by Carley Garner

DeCarley Trading

The Fed was on the buy side again today; they purchased $7.248 billion of the $17.913 offered by dealers in the 2013 to 2016 range. Also helping the early morning market bid, the payroll firm ADP announced that it is predicts that the U.S. economy lost about 371,000 jobs last month. This was a little less than expected and seemed to have put traders on their toes going into Friday's numbers. Nonetheless, the buying frenzy eventually dried up leaving Treasuries well into negative territory by afternoon trade.

Unlike the ISM manufacturing data released earlier in the week, the ISM services index was a slight disappointment. In fact, the report suggests that the service sector contracted more last month than it did in the previous.

At first, the market seemed to shrug off the Treasury Department's announcement that it would be auctioning $75 billion in notes and bonds next week. Perhaps the success of last week's 7-year note issue is still fresh in the minds of traders. However, as the day progressed the market made its way considerably lower.

Treasuries have been overly choppy, but the large up and down days haven't given way to a clear direction. This makes for a difficult trading environment but Friday's employment data may be what we need to get the market back on course. For now, we prefer to wait until the employment situation is known before trying to speculate on the next move.

Going into Friday's numbers, we like the idea of being bullish near 114 in the 30-year bond and just under 115 in the note. At which point it may be an opportunity to execute long futures, short puts or a combination. Aggressive option spread traders may look to buy a call near the money call, sell an out-of-the-money put and then sell an out-of-the-money call. The result is a fast paced option spread that is versatile in terms of adjustments.

We mentioned that we liked the upside in the 5-year note below 114 and the market looks to have moved higher without us. However, there may be an opportunity to be bullish this market after the employment data Friday morning. Stay tuned for better price action.

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Thu, Aug 6 2009, 01:01 GMT

Overflow buying from yesterday's 7−year note auction

Fri, Jul 31 2009, 21:12 GMT
by Carley Garner

DeCarley Trading

Economic data was mixed and equities held their ground but Treasuries managed to muster up enough momentum to stage an impressive rally. It seems as though the short squeeze has begun...and seasonal strength may eventually take this rally much higher than many are anticipating.

The second quarter advanced GDP was reported as being better than expected at a negative 1%. Most were looking for a draw of 1.5%, but it was a downward revision in the first quarter figure that prompted bond buying. Also helping the bull case was a tick higher in the inflation components of the report.

It seems to me that the day's gains can be more reasonably attributed to a continuation of the market's sigh of relief following the 7-year note auction. After poor showings in the 2 and 5-year note space, the market had been anticipating the worst.

Unfortunately, we let the uncertainty over the auction and putting too much faith into the negative correlation between stocks and bonds to get in the way of our bullish stance. It appears as though we may have missed the low in terms of our guidance. However, if seasonals have anything to do with it, this rally could have room to run.

Look for digestion early next week that could see support near 117'26 in the 30-year bond and 116'16 in the 10-year note. However, the note will need to see a close above 117 on Monday to keep the rally alive. Resistance in the 5-year note comes in near 115'17, we will need to get a close above this area early next week to see some follow through buying.

Sorry so short, enjoy your weekend!

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Fri, Jul 31 2009, 21:12 GMT

Rough auction weighs on bonds

Thu, Jul 30 2009, 00:52 GMT
by Carley Garner

DeCarley Trading

Treasury trade pared early morning gains following a lackluster 5-year note auction but the Fed Beige book was the story of the day. Erratic stock trade seemed to go unnoticed but should keep a floor under pricing.

The Treasury auctioned $39 billion in 5-year notes at a higher than expected rate for 2.689% and a bid to cover of only 1.92. This was a far cry from the previous outing that saw a 2.58 bid to cover. Additionally, the indirect bidder participation accounted for only 35.7% of the demand. If the auctions continue to see declining demand, the government may have to tighten its belt as borrowing costs tick higher.

As significant as the previous auctions have been, the "real deal" will be tomorrow's 7-year note offering. The Treasury plans to sell $28 billion, and the markets demand may be a good indicator of how well the size of such sales are being absorbed.

The Fed bought $2.999 billion of the $11.707 billion offered by dealers. They have now purchased nearly $220 billion of the $300 billion slated to be depleted by the end of the summer.

We are still bullish in the intermediate term but aren't ready to pick a bottom just yet. Perhaps, tomorrow's auction will provide the opportunity that we are looking for to be bullish at better levels. We see support in the long bond near 114'15 then again just under 114. Note traders should continue to look for support near 114'15, but we think that 114 will be seen. The 5-year note is becoming attractive from the long side but we do see the possibility of a little under 114 should tomorrow's auction falter.

Oops, there was a typo in yesterday's newsletter. It should have read support in the 10-year note at 115'15 and 115'00 rather than 114'15 and 114'00. We apologize for the confusion.

* 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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Thu, Jul 30 2009, 00:52 GMT

Treasuries bogged down by supply

Mon, Jul 27 2009, 23:11 GMT
by Carley Garner

DeCarley Trading

Better than expected housing starts combined with record debt supply kept Treasuries under pressure. Yields on the benchmark 10-year note rose to their highest level in about a month.

The U.S. Treasury is slated to auction $115 billion in notes this week. The first on deck was this afternoon's reopen of the 20-year TIPS which saw a 2.5% yield on a bid to cover of 1.92 and a 54% indirect bidder take in the last offering. Today's serving of 20-year TIPs was in the amount of $6 billion and was met with a healthy amount of demand. The bid to cover came in at 2.27 but the indirect bidders only accounted for 47.8% of the action. Keep in mind that indirect bidders are mostly assumed to be foreign; while demand from overseas was healthy it was a little less than what we have been seeing.

On Tuesday, investors are expecting the sale of $42 billion in 2-year notes, $39 billion in 5-year notes on Wednesday and $28 billion in 7-year notes of Thursday. Many analysts are weary of the ability of bonds and notes to quickly recover from such a massive amount of supply regardless of what the chart may suggest.

We feel as though supply concerns, although dominating trade, are built into pricing but it is up to equities to give life to bonds and notes. Without a stock market correction, it will be difficult for Treasuries to find buyers.

Weakness in the buck is also working against Treasuries. It seems as though the dollar index may be headed toward a test of support near 77. If this is true, the currency market could temporarily bring bonds and notes lower in the near-term but we feel like intermediate-term prospects are favorable.

Also putting pressure on interest rate products, new home sales came in much higher than analyst estimates at 384k; the previous reading was 346k and expectations were for about 350k. However, some analysts point out that despite higher sales, prices continue to weaken. This suggests that sales are the product of discounting as opposed to a strengthening market.

We continue to be relatively neutral in the near term but feel like there could be a great buying opportunity at lower prices. Nonetheless, we see support just under 115 in the long bond and again near 113'20. Resistance should be found near 116'14 and again at 118'04. On our most recent newsletter, we noted support in the 10-year note near 115'15 and this continues to be the case. However, we cannot rule out a move to just under 115 before a reversal can occur.

* 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.

July 20 - We recommended to sell the August 109 puts for about 23 ticks
• July 21 - We recommended to buy back the August 109's for about 8 ticks, a fill at 9 was possible today.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Mon, Jul 27 2009, 23:11 GMT

Wild ride but higher

Wed, Jul 22 2009, 00:19 GMT
by Carley Garner

DeCarley Trading

The session started off with an overly negative tone, but it didn't last long. The lack of economic news paved the way for a Bernanke taking the stage in the bond pit. His views of tame inflation for the foreseeable future prompted bond and note buying to push the futures market to our upside target in the long bond.

The buying spree was aided by Fed buying in the 2016 and 2019 maturities; the central bank purchased $7.0 billion of the $18.502 that dealers were looking to unload. On a percentage basis, this was a much more aggressive purchase as has been seen in the past. This comes after last weeks' message from the Fed in which it appeared that the quantitative easing policy had a limited and minimal life span. If you recall, the minutes of the most recent meeting suggests that most Fed members doubt that the purchase of the Treasuries own securities would have little impact on long-term interest rates.

The volume was noted as being lackluster, and may have been exaggerated by the running of buy stops. However, it is difficult to deny the bullish tilt. We remain overall bullish. In fact, we think that a close over 118'15 in the coming session will lay the ground work for another retest of the recent highs near 121 and possibly even the mid 123's within the next month or so if the equity rally fails.

Keep in mind that the seasonal tendency for bonds and notes points higher throughout the remainder of July. Come August, the market tends to see an even more bullish tone. Of course, seasonals aren't fool proof but I wouldn't be willing to bet against them often.

If you are following yesterday's recommendation to sell puts against the 30-year bond, we like the idea of taking a quick profit. The 109's could have been sold yesterday for about 23 ticks and bought back today for about 9.

In yesterday's newsletter, we mentioned the next meaningful resistance in the 30 year to be in the mid-115's which happened to be the highs of the session. This leaves us relatively neutral in the next day or two but it seems as though a close above 115'15 could mean a continued rally.

We also mentioned that a close above 117 in the 10-year note may lead to 119, and it seems that the market is well on its way.

**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.

July 20 - We recommended to sell the August 109 puts for about 23 ticks
• July 21 - We recommended to buy back the August 109's for about 8 ticks, a fill at 9 was possible today.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Wed, Jul 22 2009, 00:19 GMT

Treasuries bounce on technical buying

Mon, Jul 20 2009, 21:26 GMT
by Carley Garner

DeCarley Trading

Although the days data was nearly as thin as the trade, Treasury speculators were placing bets on higher bonds and notes in the coming days. Most of the buying came before and immediately following a 3 and 6 moth bull auction. As has been the trend, U.S. backed debt is still in demand.

The Treasury auctioned $32 billion in 3-month bills at 0.19% with a bid to cover of 3.35 and another $31 billion in 6-month bills at .285% with a 3.60 bid to cover. Investors don't seem to be turned off by the next to nothing yields but as paltry as they are, it wasn't too long ago that Treasury buyers were willing to pay a yield in order to have the privilege of the government's AAA rating.

Leading indicators was reported better than expected at a gain of .7%. Analysts were looking for .5% while the previous reading was 1.3%. Although the news was bearish, the market seemed to have already priced it in the data before it was released.

Corporate earnings have been generally positive, and therefore equities have managed to force their way higher. Naturally, this has put pressure on bond and notes but both markets seem to be nearing a near-term turning point. Even so, picking the apex in any market can be a challenging task and there is no way to ensure that we are right about the market's direction therefore traders should give themselves ample amount of room for error. For instance, this morning we liked the idea of selling August puts against the September 30-year bond in the 109 and 110 strike prices. The 109 could have been sold for 23 or 24 ticks while the 110 may have collected a little over 30.

In Friday's newsletter, we mentioned strong support at 115'20 with the mid-115's possible. So far, this assumption has held true. Nonetheless, if the upside in Treasuries is going to continue we will need to see some back and filling in the equity market. If this is the case, I don't see meaningful resistance in the long bond until we reach the mid-118's.

The 10-year note needs a close above 117 in tomorrow's session to confirm the recovery. If this is the case, we could see 119 again.

**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.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Mon, Jul 20 2009, 21:26 GMT

Bonds break down, but support looming

Tue, Jul 14 2009, 01:55 GMT
by Carley Garner

DeCarley Trading

Bonds and notes were hit hard on a continuation of the equity rally, and liquidation in anticipation of this afternoon's release of the Fed's minutes. Also weighing on Treasuries was a significant downdraft in the greenback. However, going forward we wonder if this move will last. After all, seasonal tendencies point toward supportive Treasury prices and equities may be facing a significant technical barrier.

On the inflation front, yesterday's PPI numbers showed a significantly larger jump in price pressure than was expected. Likewise, this morning's CPI was reported at an increase of .7%, a little hotter than anticipated. Additionally, the FOMC minutes mentioned that "While most members did not see large scale purchases of Treasury securities as likely to be a source of inflation pressures given the weak economic outlook, public concern about monetization could have adverse implications for inflation expectations."

Hopefully, the state of Michigan isn't an indication of things to come for the U.S. economy. The state suffered an unemployment rate of just over 15% in the month of June. I am not convinced that the U.S. will see similar numbers, but I do think that the Treasury market will refocus on the sluggish economy and recover from the current correction...at some point.

The long bond dropped a little sharper than we thought that it might. Our first target was 118 and at the time of this email the September bond futures were trading closer to 117. It is too early to tell if the overshoot was due to light volume, or we are actually headed even lower...114'25 is the next stopping point. The note on the other hand, has reached our target of 116'20 as noted in Monday's newsletter and we can't help but feel like we could see a bounce from these levels. Similarly, our target in the 5-year note of 115 has been achieved (close enough).

**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.

June 26th - We recommended that our clients sell the August Bond 124 calls for 20
• We recommend buying this back for 6 or less.
• July 8 - We recommended re-selling or adding on to this position near 27 to 30 ticks.
• July 25 - If you followed this trade, you should be out with a nice profit. If you are still in, don't push it!

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

July 2 - Clients were recommended to sell the 5-year note near 115'15 and purchase either a 116 call or a 115.50 call for insurance. The trade offers limited risk with unlimited profit potential.

July 14 - Some clients sold puts against the down move to reduce the delta of this trade

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Tue, Jul 14 2009, 01:55 GMT

Chop, chop, chop

Tue, Jul 14 2009, 01:48 GMT
by Carley Garner

DeCarley Trading

Today marked the fourth consecutive session in which the day's trading range was large, highly directional, and yet overall directionless. Since Wednesday of last week, the market has had big up days followed by big down days but little progress has been made in either the bull camp, nor the bear camp.

Traders seemed to all be shrug off the fact that last week was the first time in history that the Treasury held four auctions in a since week. Contrary to six weeks ago, supply concerns are no longer in the forefront of the minds of traders. Instead, they are looking toward the stumbling economy and the consistent demand for Treasury securities. Don't forget that the June employment data is still resonating through the markets and the fact that Vice President Joe Biden admitted that the administration had underestimated the severity of the economy. Also, if Nouriel Roubini was right in saying that, "The June employment report suggests that the alleged 'green shoots' are mostly yellow weeds that may eventually turn into brown manure"; this rally could have some room to move higher in the long run.

In the near-term, however, it seems like the market could be in store for another day or two of back and filling trade. On Friday we predicted a bond market turn around should equities and crude oil trade higher. We were right in two of three markets but if crude bounced the way that we think that it could, we may see some follow through selling in Treasuries. We have revised our downside targets to 118 in the 30-year bond, 116'20 in the 10-year note and 115 in the 5-year note.

**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.

June 26th - We recommended that our clients sell the August Bond 124 calls for 20
• We recommend buying this back for 6 or less.
• July 8 - We recommended re-selling or adding on to this position near 27 to 30 ticks.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

July 2 - Clients were recommended to sell the 5-year note near 115'15 and purchase either a 116 call or a 115.50 call for insurance. The trade offers limited risk with unlimited profit potential.

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Tue, Jul 14 2009, 01:48 GMT

Again...What a difference a day makes for Treasury trade

Fri, Jul 10 2009, 20:54 GMT
by Carley Garner

DeCarley Trading

Again...What a difference a day makes for Treasury trade

Treasuries erased yesterday's losses; however, some analysts are questioning the fact that the rally happened on light volume and likely with end of the week position squaring as a contributing factor.

Bond and notes were moving higher in technical action ahead of the day's major news event, the Michigan Sentiment and the rally continued in post-announcement trade. The University of Michigan's sample of the population only accounts for about 300 individuals in prominent financial standing. Therefore the miss in expectations wasn't taken lightly by bond traders. The headline number was reported at 64.6 despite consensus estimates of a little over 70. Keep in mind that the prior reading was 70.8.

Despite today's sharp rally, we are wondering whether Treasuries can continue higher from these levels. We still feel like there is plenty of room for this rally to move but also feel like things have progressed too far, too fast. We will continue to look for weakness in the coming days. However, the fate of Treasuries is heavily reliant upon the direction of crude oil. Yes, I said it...crude oil.

The sharp decline in the energy markets has been made on the premise that speculators have lost faith in the economic recovery. The unsettling pessimism in crude has, by osmosis, made its way into equities and in turn has been a major contributing factor to the Treasury rally.

I am not an energy expert, but my gut tells me that crude prices are dramatically oversold and should be approaching significant support areas. A reversal, albeit temporary, will take the selling pressure off of equities and should trigger a Treasury correction. We haven't completely given up on our downside targets of about 117'14 in the long bond, 116 in the 10-year note and 114'25 in the 5-year note.

**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.

June 26th - We recommended that our clients sell the August Bond 124 calls for 20
• We recommend buying this back for 6 or less.
• July 8 - We recommended re-selling or adding on to this position near 27 to 30 ticks.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

July 2 - Clients were recommended to sell the 5-year note near 115'15 and purchase either a 116 call or a 115.50 call for insurance. The trade offers limited risk with unlimited profit potential.

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Fri, Jul 10 2009, 20:54 GMT

Treasuries undecided

Wed, Jul 8 2009, 01:16 GMT
by Carley Garner

DeCarley Trading

Treasuries undecided

Bonds and notes waffled on both sides of unchanged in Tuesday's session as the bears focus on supply and the bulls argue a flight to quality. In the end, the day's trade was a relative wash.

Light volume likely played a big part in the day's price swings. After being under pressure in early trade, Treasuries rallied back in anticipation of a 3-year note auction, but then pared gains on post-auction trade. Demand for the government issued notes was strong, but the yield of 1.519% paid to buyers was at a higher than expected. There was a 54% indirect bidder participation, which suggests that foreign investors continue to like the safe haven of Treasuries.

In the absence of economic news, equities have once again become the primary force behind price moves in the bond pit. Equities have struggled in recent weeks and are approaching significant support areas and it could be "make or break" time. For instance, the S&P must hold the mid to low 870's to avoid a sweeping move to the 850, and possibly even 840 area. Should the mid-870's be seen in the S&P bonds and notes should get a lift. The dollar on the other hand, offers little directional help. The September index has been range bound for weeks, with little indication of the next move.

Treasuries are simply too quiet; we don't expect this to last long. It seems as though the long bond is preparing for another large rally. If you have bearish positions in this market I recommend playing it close to the chest. I see potential for the September 30-year bond to see prices just under 121. This rally likely won't happen should equities hold their ground, but my analysis suggests that it is a real possibility. That said, if it does happen it should be a great time to sell calls and/or buy puts. Aggressive traders may even want to execute a bear put spread with a naked leg. This involves selling a call, buying a put and then selling a distant put to pay for the trade. If you are interested in learning more, check our websites for free articles or pick up a copy of "Commodity Options" published by FT Press.

We have been continually noting the mid 117's in the note as a potential upside target, we are now thinking a bit higher from here. Look for just under 118 for an opportunity to be a bear. If you are following the 5-year note trade below, I hope that you purchased the call option as insurance as we suggested. It seems like we may be a little early to catch this move. I would prefer not to see it, but 116 looks like the next stopping point. If you don't like the trade, you can get out or sell a 115 put to bring in about $500. It this will basically create a trade in which it is hard to lose money, but hard to make it to....but breaking even may not be a bad thing.

**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.

June 26th - We recommended that our clients sell the August Bond 124 calls for 20
• We recommend buying this back for 6 or less.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

July 2 - Clients were recommended to sell the 5-year note near 115'15 and purchase either a 116 call or a 115.50 call for insurance. The trade offers limited risk with unlimited profit potential.

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Wed, Jul 8 2009, 01:16 GMT

Treasuries extend rally, long bond 120?

Thu, Jul 2 2009, 20:53 GMT
by Carley Garner

DeCarley Trading

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" article in SFO magazine and PFG webinar. Visit our websites to view an archive of the class. You can also read more about this strategy in my book, "Commodity Options", which is available through all major book outlets.

Oops, there was a mixup in yesterday's newsletter in which part of the newsleter written on June 26th, bled into Wednesday's commentary. We apologize for the confusion that this may have caused.

Enjoy your holiday weekend!

**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.

June 26th - We recommended that our clients sell the August Bond 124 calls for 20

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

July 2 - Clients were recommended to sell the 5-year note near 115'15 and purchase either a 116 call or a 115.50 call for insurance. The trade offers limited risk with unlimited profit potential.

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Thu, Jul 2 2009, 20:53 GMT

Treasuries mixed ahead of data and holiday

Thu, Jul 2 2009, 00:56 GMT
by Carley Garner

DeCarley Trading

Bond and note futures traded mixed as traders spent the day squaring positions ahead of the long holiday weekend and tomorrow's non-farm payrolls data. The report is typically released on Friday but the government has adjusted the release date in observation of the 4th of July and the fact that the U.S. markets will be closed (for the most part). I can remember a few occasions in which market moving economic announcements were made on days in which the NYSE was closed, but various futures markets were open for abbreviated sessions. It typically isn't an ideal trading environment, luckily Friday won't be such a case.

Today's trade was a roller coaster of emotions for those with Treasury positions on. Although a relatively narrow range, intraday trade was highly volatile. Some of this was at the hands of the spurts of economic data hitting the airwaves.

Early this morning, ADP announced their prediction of a draw of 473,000 jobs in the U.S. economy. Later we heard that construction spending was slightly lower than anticipated but the ISM manufacturing index was a little higher; pending home sales also saw a minor improvement. In a nutshell, the news was mixed and released bits at a time to create a hotbed of indecisive trade.

Also adding to the day's uncertainty, Reuters reported a story claiming that China wants to rekindle talks of a replacement reserve currency at the G8 meeting. The news send the dollar lower and the bonds followed. Chinese concerns over the health of the dollar may eventually lead to liquidation of their massive U.S. debt holdings. If this happens, the Fed's Treasury buying program will be nearly powerless.

As it turns out, our market analysis played out relatively well over the most recent trading sessions. On Friday of last week we mentioned "... we could be in the process of forging a temporary high in bonds and notes." And later added, "We see strong resistance in bonds near 119'17, but wonder if we will even see that high."

Unfortunately, the picture isn't so clear from here. Overall, I still feel like Treasuries can go much higher in the coming month or months. However, the recent rally has been swift and significant resistance remains in the mid 119'15's in the long bond. I will refrain from making any bold calls until later next week, when some liquidity comes back to the marketplace. However, my best guess is that we could be in store for a test of the 119'16 resistance area.

We also noted resistance in the 10-year note last week near 116'25, which held nicely. It now seems like we could be headed for the 117 area. Likewise, we think that the 5-year note could see the mid 115's soon.

That said, we don't recommend trading until next week (unless of course you just can't help yourself). Chances are that most of the traders still involved in the markets, will be long gone soon after the employment report in the morning.

Yesterday we mentioned that we liked the idea of selling the 124/125 calls on continued strength. Our clients were able to sell the August Bond 124 calls today for 20 ticks. If you would like to play it a bit safer, you may want to hold out for the chance to sell the 125's for similar pricing.

We see strong resistance in bonds near 119'17, but wonder if we will even see that high. Note traders should look for resistance near 116'25. The 5-year note could be getting toppy near 115. If you happen to have the 5-year note trade recommended last month, we recommend getting out at or near current levels with a small loss. We may even consider recommending a short position depending on how things look early next week.

If you have missed this newsletter in recent days, we apologize for the inconvenience. Unfortunately, we have limited time and sometimes have to prioritize. Keep in mind that clients of DeCarley Trading were, and are always, welcome to contact us for guidance above and beyond this newsletter. If you aren't already trading with us, perhaps you should be.

**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.

June 26th - We recommended that our clients sell the August Bond 124 calls for 20

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

June 29 - Our clients were recommended to sell September Eurodollar futures while buying a 9937.5 call as insurance. The calls were getting filled near 7 ticks, and the futures near 9933. This makes the total risk on the trade at expiration $287.50 before commissions and fees.

Published on Thu, Jul 2 2009, 00:56 GMT

The Bond Bulletin

Fri, Jun 26 2009, 20:26 GMT
by Carley Garner

DeCarley Trading

Consumers confident but tight fisted

Treasury traders continued to bid bonds and notes higher into week's end. This is in contrast to the notoriously habitual countertrend trade often seen in the interest rate markets. However, volumes were light and trade was uninspiring. It seemed as though bored traders called it quits by mid-session.

Economic data was relatively mixed. Personal income and spending data suggested that inflation remains under the radar. In fact, the U.S. savings rate rose to its highest level in 16 years. Naturally, money saved and not spent slows the velocity of funds flowing through the economy and will work against price pressures. The news was bond friendly but the University of Michigan's consumer sentiment kept a cap on the buying. According to U of M, consumer confidence has ticked higher in the most recent month to land the index at 70.8.

On a side note, the Wall Street Journal, one out of four defaults on mortgage loans is "strategic". Homeowners than can afford to pay are opting not to pay in order to alleviate the hardships that come with being upside down on a mortgage. This is important because the government is attempting to address cash crunch issues in the housing market they are failing to address the negative equity epidemic. I am not saying that they should or shouldn't, but that it is important to realize that the unintended consequences of political decisions will continue to resonate throughout the economy for some time to come. From a fundamental standpoint, it seems that the safety of Treasuries could remain attractive to risk adverse investors for the time being.

With that said, in the near term we could be in the process of forging a temporary high in bonds and notes. Yesterday we mentioned that we liked the idea of selling the 124/125 calls on continued strength. Our clients were able to sell the August Bond 124 calls today for 20 ticks. If you would like to play it a bit safer, you may want to hold out for the chance to sell the 125's for similar pricing.

We see strong resistance in bonds near 119'17, but wonder if we will even see that high. Note traders should look for resistance near 116'25. The 5-year note could be getting toppy near 115. If you happen to have the 5-year note trade recommended last month, we recommend getting out at or near current levels with a small loss. We may even consider recommending a short position depending on how things look early next week.

**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.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

May 27 - We recommended that our clients sell the July bond 109 puts for 25 or better, some fills were reported near 30.

• May 28 - For those holding both the 112's and the 109's we lowered the delta of the trade by selling the July 123 calls for 30 and buying the 110 puts for 56. If we detect stability, we will salvage what we can for the long put and hold the strangle.

• May 29 - we sold the long 110 puts this morning for 30 and are holding the lopsided strangle looking for a decrease in volatility and accelerated premium erosion.
• June 5 - We bought back the 123 calls for 5 ticks to take a profit on that leg
• June 8 - We sold the July 119 calls for about 30 and the 118's for about 32 to strangle the market (AKA stop the bleeding)
• June 10 - We rolled the July 10 puts from the 112 puts to widen the strangle, we gave up about 41 ticks in premium to do it.
• June 12 - We recommended that our clients buy back the 109 puts for 8 ticks.
• June 15 - We recommended that our clients (with this version of the spread) buy back the 110 puts for 8 ticks.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

May 26 - Buy the June 5-year note at 116'05 or better ( you should have rolled this into the September contract, which would be equivalent to an entry near 115'06)
• May 29 - Look to liquidate this trade near 115'25
• June 4 - We recommended readers with this position to purchase a 114 put for insurance, hopefully if you have this trade on you were able to do so. Doing this would limit the risk on the trade to approximately $1,500 before commissions and fees.

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Fri, Jun 26 2009, 20:26 GMT

The Bond Bulletin

Thu, Jun 25 2009, 20:41 GMT
by Carley Garner

DeCarley Trading

Stocks and bonds rally in unison

The Treasury auction saw another good outing on Thursday. The government auctions $27 billion in 7-year notes to eager investors at just over 3.3% and a bid to cover at 2.82. Indirect bidders (assumed to be primarily foreign central banks) made up about 67.2% of the participation.

Additionally, the Fed was on the buy side of a respectable portion of the $9.526 billion in debt maturing between 2026 and 2039. The day's events and technical trade seems to have kept the bulls in control in the near-term.

It was a relatively light news day with mixed results. The weekly jobless claims saw an increase over the previous reading and was much higher than analyst estimates. First quarter GDP, on the other hand, was reported to be slightly better than what many had hoped for. However, at a negative 5.5% I don't think that anyone could argue that the news was good.

Choppy dollar trade leaves little guidance for treasury traders. The U.S. Dollar index has been trading comfortably between 82 and 79ish and doesn't seem to be going anywhere, anytime soon. This is relatively neutral for Treasuries.

In the meantime, the equity markets will play a large part in the direction of bonds and notes (despite today's disconnect from the negative correlation). It seems as though the major stock indices have a long-term negative bias. While there may be a temporary rally as investors are mulling over market fundamentals, I can't help but feel as though we will see the 870's in the S&P at some point. That said, the downdraft may not occur immediately and this may work against the Treasury rally in the coming week or weeks.

In our last newsletter, we noted resistance in the long bond near 117'24 and 118'01 which seems to have worked out nicely. We can't help but feel as though the market is getting a bit toppy; however, the 10-year note seems to have a little room to move on the upside and this may drag the 30-year higher. That said, we like the idea of being bearish from slightly higher prices. Perhaps selling August calls in the 124/125 strikes may be an optimal strategy. Aggressive traders may look to use the money collected on the short calls to purchase puts.

We are looking for just under 117 in the 10-year note, at which we begin to become bearish. Likewise, the 5-year note could see just over 115.

This report was written prior to the electronic contract rally this afternoon, but the analysis should still be relatively current. I am speaking at a CFA (Certified Financial Analyst) event tonight, so time is a little scarce.

**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.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

May 27 - We recommended that our clients sell the July bond 109 puts for 25 or better, some fills were reported near 30.

• May 28 - For those holding both the 112's and the 109's we lowered the delta of the trade by selling the July 123 calls for 30 and buying the 110 puts for 56. If we detect stability, we will salvage what we can for the long put and hold the strangle.

• May 29 - we sold the long 110 puts this morning for 30 and are holding the lopsided strangle looking for a decrease in volatility and accelerated premium erosion.
• June 5 - We bought back the 123 calls for 5 ticks to take a profit on that leg
• June 8 - We sold the July 119 calls for about 30 and the 118's for about 32 to strangle the market (AKA stop the bleeding)
• June 10 - We rolled the July 10 puts from the 112 puts to widen the strangle, we gave up about 41 ticks in premium to do it.
• June 12 - We recommended that our clients buy back the 109 puts for 8 ticks.
• June 15 - We recommended that our clients (with this version of the spread) buy back the 110 puts for 8 ticks.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

May 26 - Buy the June 5-year note at 116'05 or better ( you should have rolled this into the September contract, which would be equivalent to an entry near 115'06)
• May 29 - Look to liquidate this trade near 115'25
• June 4 - We recommended readers with this position to purchase a 114 put for insurance, hopefully if you have this trade on you were able to do so. Doing this would limit the risk on the trade to approximately $1,500 before commissions and fees.

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Thu, Jun 25 2009, 20:41 GMT

FOMC statement looms

Wed, Jun 24 2009, 08:48 GMT
by Carley Garner

DeCarley Trading

Traders had very little news to sway their opinions but tomorrow could be a much different picture. The Fed is expected to keep rates at a standstill, but hints of more aggressive security buying or sooner than expected rate highs to thwart inflation risk could create pandemonium in the marketplace.

Treasuries shrugged off supply concerns on a week in which over $100 billion in Treasury debt will be issued across the curve. However, today's $40billion 2-year auction attracted a 3.19 bid to cover to show a stronger than expected appetite for government bonds in this maturity. The indirect bid participation rates was 68.7%, this suggests that foreign central banks still view U.S. backed Treasuries as a relatively attractive place to park money.

Housing market data has attracted a lot of attention lately due to the fact that deflating home values were a contributing factor in the recession. Accordingly, today's existing home sales may have caused an overreaction. Existing home sales were reported at 4.77 for the most recent month, this is better than the previous 4.66 but didn't meet the optimistic expectations of analysts.

If you are willing to hold overly directional positions into tomorrow's FOMC announcement, you have more guts than I do. My charts are suggesting moderately higher prices in bonds and notes but the event risk leaves things highly uncertain.

We see significant resistance in the September bond futures at 117'24 and then again near 118'01. I wouldn't expect prices to get much higher than this in the short-term. However, in the next month or so it seems as though the ultimate target will be 124ish.

The 10-year note should continue to struggle with the 115'20/24 area, but a spike to 117 isn't out of the question. However, at such levels we would turn near-term bearish. The 5-year note has been the weakest of the three and must hold above 114 to continue making progress on the upside. However, the next significant resistance area won't be until the mid-115's.

**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.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.
May 27 - We recommended that our clients sell the July bond 109 puts for 25 or better, some fills were reported near 30.
May 28 - For those holding both the 112's and the 109's we lowered the delta of the trade by selling the July 123 calls for 30 and buying the 110 puts for 56. If we detect stability, we will salvage what we can for the long put and hold the strangle.
May 29 - we sold the long 110 puts this morning for 30 and are holding the lopsided strangle looking for a decrease in volatility and accelerated premium erosion.
June 5 - We bought back the 123 calls for 5 ticks to take a profit on that leg
June 8 - We sold the July 119 calls for about 30 and the 118's for about 32 to strangle the market (AKA stop the bleeding)
June 10 - We rolled the July 10 puts from the 112 puts to widen the strangle, we gave up about 41 ticks in premium to do it.
June 12 - We recommended that our clients buy back the 109 puts for 8 ticks.
June 15 - We recommended that our clients (with this version of the spread) buy back the 110 puts for 8 ticks.

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

May 26 - Buy the June 5-year note at 116'05 or better ( you should have rolled this into the September contract, which would be equivalent to an entry near 115'06)
May 29 - Look to liquidate this trade near 115'25
June 4 - We recommended readers with this position to purchase a 114 put for insurance, hopefully if you have this trade on you were able to do so. Doing this would limit the risk on the trade to approximately $1,500 before commissions and fees.

Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

Published on Wed, Jun 24 2009, 08:48 GMT

The Bond Bulletin

Fri, Jun 19 2009, 21:29 GMT
by Carley Garner

DeCarley Trading

Bond volatility declines, will it last?

Treasuries spend the last two sessions of the week attempting to digest the erratic trade witnessed in the previous several weeks. I can't speak for everyone, but I welcomed the day's relatively peaceful trade and look forward to a weekend away from the markets.

Many traders noted that the lack of consistent volume is exaggerating price swings. However, all in all it is likely that the market won't make any dramatic moves until after the FOMC meeting next week. The Fed isn't expected to take action, but that doesn't mean that the market won't react to any accompanying commentary.

From a technical point of view, the market's immediate direction is highly uncertain. We see critical support near 112 in the long bond and resistance near 118. From a fundamental standpoint, we think that seasonal tendencies will begin playing a bigger factor. Given the light summer volume, which is often the case with summer bond trade, and an overly bearish speculative stance taken by traders it seems as though the path of least resistance will be higher in the intermediate term. That said, we can't rule out a test of 112 support or maybe even a retest of the recent lows (if equities make another attempt at the rally) before the market gets more footing.

At current levels, we recommend that traders remain virtually flat. As outlined below, we are holding a short August T-bond 110/123 strangle. If you are trading the note, we see support at 112'17 at which time we begin to like the long side and resistance near 115'11 and again at 117'20.

Luckily, none of our clients were involved in the 5-year note trade recommended below. If you did, I hope that you bought the insurance (114 put) recommended in this newsletter on the 4th of June. If not, and you were able to ride things out you would be sitting with an equivalent loss at this point. We still feel like a break of 114'02 could lead to a rally to the 116 area. If you have nerve (and you bought the insurance) you may want to let this one ride for now.

**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.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

May 27 - We recommended that our clients sell the July bond 109 puts for 25 or better, some fills were reported near 30.

• May 28 - For those holding both the 112's and the 109's we lowered the delta of the trade by selling the July 123 calls for 30 and buying the 110 puts for 56. If we detect stability, we will salvage what we can for the long put and hold the strangle.

• May 29 - we sold the long 110 puts this morning for 30 and are holding the lopsided strangle looking for a decrease in volatility and accelerated premium erosion.
• June 5 - We bought back the 123 calls for 5 ticks to take a profit on that leg
• June 8 - We sold the July 119 calls for about 30 and the 118's for about 32 to strangle the market (AKA stop the bleeding)
• June 10 - We rolled the July 10 puts from the 112 puts to widen the strangle, we gave up about 41 ticks in premium to do it.
• June 12 - We recommended that our clients buy back the 109 puts for 8 ticks.
• June 15 - We recommended that our clients (with this version of the spread) buy back the 110 puts for 8 ticks.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

May 26 - Buy the June 5-year note at 116'05 or better ( you should have rolled this into the September contract, which would be equivalent to an entry near 115'06)
• May 29 - Look to liquidate this trade near 115'29
• June 4 - We recommended readers with this position to purchase a 114 put for insurance, hopefully if you have this trade on you were able to do so. Doing this would limit the risk on the trade to approximately $1,500 before commissions and fees.

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Fri, Jun 19 2009, 21:29 GMT

The Bond Bulletin

Thu, Jun 18 2009, 01:00 GMT
by Carley Garner

DeCarley Trading

5 days, 5 handles

Bonds and notes have been nearly as relentless on the upside as they were on the downside. It seems as though the light summer volume has aided one sided trade. The Treasury futures are infamous for overshooting equilibrium prices and it is obvious that last week's move was more emotional than fundamental. However, the rally may have reached its potential in the near term. Look for consolidation trade in the coming session or two.

Futures were leaning higher coming into the session, but it was a benign inflation report that allowed the buying to extend itself. The consumer price index was reported at .1%, a bit lower than expected. The core number was also at .1% to conform with analyst predictions. The news is bullish for bonds considering that deflationary concerns will slow down the recovery and the fact that the market had been selling off sharply in previous weeks in anticipation of eventual inflation.

Also helping the buy side, Standard & Poor's announced that it would be unlikely to changes its AAA credit rating for the U.S. in the "near term". If you recall, some of the bond and note retreat was attributed to rumors of a possible downgrade of government securities.

The week's remaining economic news shouldn't be catalysts for trade unless there is a large miss on the data. From here, we will likely see technical trade with the equity markets leading the way.

In yesterday's newsletter, we mentioned that we didn't expect the T-bond to get much higher than the mid-116's. As it turns out, the move had a bit more strength than we had anticipated but we still feel like a few days of back and filling are necessary. The nearest support will likely be found near 115'20/15 area. The note on the other hand, stayed within our projected upside target zone of 115'20 to 116 and we feel as though the bulls may need a break. Look for support near 114'22 then again at 114'11.

If you are following our bond strangle, we rolled the remaining short 118 call this morning into the August 110 put and 123 call. While the 118 will probably end up being fine, it didn't seem worth the risk given its proximity to the market and the light volume.

**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.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

May 27 - We recommended that our clients sell the July bond 109 puts for 25 or better, some fills were reported near 30.

• May 28 - For those holding both the 112's and the 109's we lowered the delta of the trade by selling the July 123 calls for 30 and buying the 110 puts for 56. If we detect stability, we will salvage what we can for the long put and hold the strangle.

• May 29 - we sold the long 110 puts this morning for 30 and are holding the lopsided strangle looking for a decrease in volatility and accelerated premium erosion.
• June 5 - We bought back the 123 calls for 5 ticks to take a profit on that leg
• June 8 - We sold the July 119 calls for about 30 and the 118's for about 32 to strangle the market (AKA stop the bleeding)
• June 10 - We rolled the July 10 puts from the 112 puts to widen the strangle, we gave up about 41 ticks in premium to do it.
• June 12 - We recommended that our clients buy back the 109 puts for 8 ticks.
• June 15 - We recommended that our clients (with this version of the spread) buy back the 110 puts for 8 ticks.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

May 26 - Buy the June 5-year note at 116'05 or better ( you should have rolled this into the September contract, which would be equivalent to an entry near 115'06)
• May 29 - Look to liquidate this trade near 115'29

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Thu, Jun 18 2009, 01:00 GMT

The Bond Bulletin

Wed, Jun 17 2009, 01:41 GMT
by Carley Garner

DeCarley Trading

Short covering continues in Treasuries

Treasury futures bears have been on the defensive in the previous four sessions. This is in stark contrast to action witnessed in recent weeks. While it was difficult to avoid jumping on the bear bandwagon last week, it is now clear that the market had gotten a bit ahead of itself in when it comes to pricing in the economic recovery, Treasury supply and inflation concerns.

The Federal Reserve is considering extending its purchases of U.S. Treasuries but are noting that aggressive buying is likely not in the cards given the inflation implications. However, today's purchase of $6.5 billion in government debt was supportive of the longer end of the curve.

Additionally, mixed economic news seems to favor the bulls as much of the bearish news was more than priced in coming into this week. Housing starts and building permits were both reported to be better than expected but industrial production and capacity utilization failed to impress.

On the inflation front, the PPI suggested that inflation remains non-existent but the market is looking forward to confirmation from the more important CPI. Analysts are expecting that the prices paid by consumers in the month of May for a "typical" basket of goods and services will have ticked slightly higher.

We see meaningful resistance in the long bond near 116 and as high as 116'14 but wouldn't expect prices to make much progress above these levels...at least for now. It seems like at minimum, we could see a day or two of back and filling with the first area of support just over 114.
The 10-year note chart suggests that there may be a little more steam left in the upswing, we see about 115'20 to 116 as a possibility.

**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.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

May 27 - We recommended that our clients sell the July bond 109 puts for 25 or better, some fills were reported near 30.

• May 28 - For those holding both the 112's and the 109's we lowered the delta of the trade by selling the July 123 calls for 30 and buying the 110 puts for 56. If we detect stability, we will salvage what we can for the long put and hold the strangle.

• May 29 - we sold the long 110 puts this morning for 30 and are holding the lopsided strangle looking for a decrease in volatility and accelerated premium erosion.
• June 5 - We bought back the 123 calls for 5 ticks to take a profit on that leg
• June 8 - We sold the July 119 calls for about 30 and the 118's for about 32 to strangle the market (AKA stop the bleeding)
• June 10 - We rolled the July 10 puts from the 112 puts to widen the strangle, we gave up about 41 ticks in premium to do it.
• June 12 - We recommended that our clients buy back the 109 puts for 8 ticks.
• June 15 - We recommended that our clients (with this version of the spread) buy back the 110 puts for 8 ticks.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

May 26 - Buy the June 5-year note at 116'05 or better ( you should have rolled this into the September contract, which would be equivalent to an entry near 115'06)
• May 29 - Look to liquidate this trade near 115'29

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Wed, Jun 17 2009, 01:41 GMT

The Bond Bulletin

Fri, Jun 12 2009, 21:03 GMT
by Carley Garner

DeCarley Trading

Light volume and WSJ article aid correction

An article reported in the Wall Street Journal claims that the Fed plans to keep rates low by whatever means, although it has been observed that they are reluctant to make the current program more aggressive. Nonetheless, a week of bond bashing and position squaring ahead of the weekend was reason enough for traders to be on the buy side.

The University of Michigan's consumer sentiment index was reported at a solid, but less than expected, 69. If you recall, the previous reading of 68.7 was a market-moving event sending stocks higher and bonds lower.

The U.S. dollar index forged a rally but has failed to break out of its consolidation range; luckily, I am not attempting to trade currencies... However, there has been a correlated relationship between bonds and the dollar. A close above 80.70 in the September dollar index indicates to me that bonds and notes could move higher along with the currency.

Traders are looking forward to next week's inflation data as it will play a substantial role in the direction of Treasuries from here. The foreword looking markets have already begun pricing in the potential inflation consequences of the Feds spending spree despite the fact that prices pressures have yet to show up in the data. Perhaps, the market will retract some of its inflation woes and allow for a much needed digesting of the sell-off.

Keep in mind that higher Treasury yields themselves pose a threat to the economic recovery in the form of higher borrowing costs for consumers and businesses. Not to mention higher mortgage rates, which could cut of the lifeline of the ailing housing market. In essence, the bond bears themselves may have created a situation in which their expectations for the direction of Treasuries cannot continue to exist.

We are sticking with our projections from yesterday...

Thus far, our support at 111'20 has held in the 30-year and if we can string a few days of gains together we may see 116'20 in the long bond. Likewise, we continue to see support in the 10-year near 112'20 and resistance at 116'02.

If you are following the short bond strangle, we bought back the July 109 puts at 8 ticks this morning to lock in a profit of about $328 on that leg before commissions and fees (assuming a fill at 29 on the entry).

Yesterday we had recommended that our clients sell the August 105 puts for 30 and try to get the 104 puts at 40 (for conservative traders). It is too late to participate in this trade now, in fact many missed it because if the quick reversal. However, we may look to re-work this at some point next week if bonds trade back to the lows. If you are interested in option selling, or spread trading, strategies you may find value in my book "Commodity Options" available through all major outlets.

Have a nice weekend!

**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.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

May 27 - We recommended that our clients sell the July bond 109 puts for 25 or better, some fills were reported near 30.

• May 28 - For those holding both the 112's and the 109's we lowered the delta of the trade by selling the July 123 calls for 30 and buying the 110 puts for 56. If we detect stability, we will salvage what we can for the long put and hold the strangle.

• May 29 - we sold the long 110 puts this morning for 30 and are holding the lopsided strangle looking for a decrease in volatility and accelerated premium erosion.
• June 5 - We bought back the 123 calls for 5 ticks to take a profit on that leg
• June 8 - We sold the July 119 calls for about 30 and the 118's for about 32 to strangle the market (AKA stop the bleeding)
• June 10 - We rolled the July 10 puts from the 112 puts to widen the strangle, we gave up about 41 ticks in premium to do it.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

May 26 - Buy the June 5-year note at 116'05 or better ( you should have rolled this into the September contract, which would be equivalent to an entry near 115'06)
• May 29 - Look to liquidate this trade near 115'29

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Fri, Jun 12 2009, 21:03 GMT

The Bond Bulletin

Wed, Jun 10 2009, 23:20 GMT
by Carley Garner

DeCarley Trading

Oversold, but doesn't matter

The highly anticipated reopening of $19 billion in 10-year notes went off at a pricey 3.99% and a 2.62 bid to cover. Bond and notes were heavily offered on the news putting each of the futures contracts at levels not seen since November of last year. The markets will be tested again tomorrow with the reopening of $11 billion in 30-year bonds which hasn't had strong showings in the previous two occasions.

Traders note that even in the midst of quick price action, the trading volume isn't impressive. However, that may change in the coming sessions and investors will be tempted to put money to work in Treasuries. The 4% mark on the benchmark 10-year note has been a key pivot point throughout the most recent twelve months and we don't expect things to be any different now. At some point (maybe not today or tomorrow, but soon) investors will begin to notice the value that Treasuries offer. While 4% isn't a "gravy train" it isn't bad and it is nearly guaranteed.

It was pointed out to me that the Fed no longer refers to its Treasury buying program as "quantitative easing". Most likely because they have come to the realization that it would be dangerously expensive to purchase enough of their own securities to actually cap yields. Nonetheless, they are at least making the bears think twice about getting too comfortable.

The buck has managed to keep most of the gains forged last week, but Treasury traders have yet to respond. Chatter of the Chinese pulling out of the dollar, and more importantly dollar backed assets, have prevented correlation between bonds and the greenback. If the U.S. dollar index breaks through resistance near 80.55, the June futures could be on their way to 83. If this is the case, bonds and notes should find a floor.

For those of you with the short T-Bond puts, that turned into a strangle...and has undergone many adjustments in between; we are looking to roll the 112 puts into the 110 puts in order to put the trade into a nearly delta neutral position going into the auctions today and tomorrow. We paid 41 ticks to do it, but have managed to collect enough premium around the primary position to keep the overall trade as a nice credit...now we just have to keep it.

This turned out to be a much more intensive trade than we anticipated and has undergone many different faces in order to salvage time value and allow for profitability. It seems as though barring any large volatility moves, this may be the final necessary adjustment and after what seems like an eternity of sleepless nights, the trade seems to be in a position to actually be profitable. Let's see if the market will cooperate.

Also, I realize that many of you have alternatives to the positions that we do (as displayed below) if you have any questions or need ideas, I am here for you.

We are looking for support in the 30-year bond near 112'07 then again at 111'20. The 10-year note should hold above 112'18 even in the case of an auction gone bad.

**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.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

May 27 - We recommended that our clients sell the July bond 109 puts for 25 or better, some fills were reported near 30.

• May 28 - For those holding both the 112's and the 109's we lowered the delta of the trade by selling the July 123 calls for 30 and buying the 110 puts for 56. If we detect stability, we will salvage what we can for the long put and hold the strangle.

• May 29 - we sold the long 110 puts this morning for 30 and are holding the lopsided strangle looking for a decrease in volatility and accelerated premium erosion.
• June 5 - We bought back the 123 calls for 5 ticks to take a profit on that leg
• June 8 - We sold the July 119 calls for about 30 and the 118's for about 32 to strangle the market (AKA stop the bleeding)
• June 10 - We rolled the July 10 puts from the 112 puts to widen the strangle, we gave up about 41 ticks in premium to do it.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

May 26 - Buy the June 5-year note at 116'05 or better ( you should have rolled this into the September contract, which would be equivalent to an entry near 115'06)
• May 29 - Look to liquidate this trade near 115'29

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Wed, Jun 10 2009, 23:20 GMT

The Bond Bulletin

Tue, Jun 9 2009, 21:00 GMT
by Carley Garner

DeCarley Trading

Quiet trade despite auction

In the past I have always viewed the Treasury markets as being somewhat rational relative to the other financial markets. However, in the last 9 to 12 months I have retracted that opinion. As it turns out, Treasury traders are just as prone to panic as any other; we saw it on the way up in late 2008 and again on the way down in the most recent months. Accordingly, I have become increasingly suspect in regards to the directionless trade witnessed in the previous few sessions. With near chaos in the currency and commodity markets I can't help but feel the tension in bond trade building.

The 3-year note auction went better than expected but the market's reaction was highly reserved. Contracts representing the short end of the curve caught a bit of a bid but the long bond gave up the day's gains on the news. Apparently the news wasn't good enough. Most traders looked at today's auction as a speed bump in the road to get to the reopened 10's and 30's set to be issued tomorrow and the next day. Volume has tapered in recent days but could pick up again in light of the upcoming auctions.

Looking at Treasuries on a long-term basis, we are approaching a seasonal low and massive numbers of short traders will eventually fuel a short covering rally that could be surprisingly sharp. However, the trend is clearly down and the market has yet to find a catalyst to squeeze the bears enough to deter a sell on rallies mentality. This makes for a tough climate to be a directional trader.

We are looking for support in the 30-year bond near 112'07 then again at 111'20. The 10-year note should hold above 112'18 even in the case of an auction gone bad.

**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.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

May 27 - We recommended that our clients sell the July bond 109 puts for 25 or better, some fills were reported near 30.

• May 28 - For those holding both the 112's and the 109's we lowered the delta of the trade by selling the July 123 calls for 30 and buying the 110 puts for 56. If we detect stability, we will salvage what we can for the long put and hold the strangle.

• May 29 - we sold the long 110 puts this morning for 30 and are holding the lopsided strangle looking for a decrease in volatility and accelerated premium erosion.
• June 5 - We bought back the 123 calls for 5 ticks to take a profit on that leg
• June 8 - We sold the July 119 calls for about 30 and the 118's for about 32 to strangle the market (AKA stop the bleeding)

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

May 26 - Buy the June 5-year note at 116'05 or better ( you should have rolled this into the September contract, which would be equivalent to an entry near 115'06)
• May 29 - Look to liquidate this trade near 115'29

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Tue, Jun 9 2009, 21:00 GMT

The Bond Bulletin

Thu, Jun 4 2009, 00:56 GMT
by Carley Garner

DeCarley Trading

Treasury bottom or false hope?

Treasury bonds and notes managed to thwart another wave of selling, but many are wondering whether it will last. If you ask us...we think that the sharp reversal in currencies, metals and other commodities suggests that it could. Once again, we can't rule out another retest of the lows...or the fact that we may be wrong, but things seem to be looking up for Treasuries.

The Fed bought $7.5 billion in Treasuries today but that likely wasn't the source of the buying; Bernanke didn't give any indication that the Fed's purchase were going to increase in size or frequency. In fact, the Fed chair did warn that rising U.S. debt is contributing to a spike in longer-term interest rates and it is necessary for congress to begin working on a plan to drastically reduce spending.

It seemed as though the day's gains were primarily the result of short covering triggered by lower equities and a decent ADP prediction; this was despite a slightly disappointing ISM Services figure. Whether the oversold bounce will continue seems highly dependent on whether the stock market and commodity correction extends itself.

For now we are cautiously looking for about 118'25 in the 30-year bond and perhaps 118 in the 10-year note. Assuming that our assumptions are correct, we could see 115'20ish in the 5-year note in the coming sessions.

Keep in mind while our bias is upward, there are several news events going into the weekend that could complicate things. Don't get overly bullish!

**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.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

May 27 - We recommended that our clients sell the July bond 109 puts for 25 or better, some fills were reported near 30.

• May 28 - For those holding both the 112's and the 109's we lowered the delta of the trade by selling the July 123 calls for 30 and buying the 110 puts for 56. If we detect stability, we will salvage what we can for the long put and hold the strangle.

• May 29 - we sold the long 110 puts this morning for 30 and are holding the lopsided strangle looking for a decrease in volatility and accelerated premium erosion.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

May 26 - Buy the June 5-year note at 116'05 or better ( you should have rolled this into the September contract, which would be equivalent to an entry near 115'06)
• May 29 - Look to liquidate this trade near 115'29

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Thu, Jun 4 2009, 00:56 GMT

The Bond Bulletin

Fri, May 29 2009, 22:36 GMT
by Carley Garner

DeCarley Trading

First they sour, then they soar!

It has been an eventful week in bond land and traders were more than ready for the weekend. After several panic trading sessions in interest rates, Treasuries firmed up nicely to end the week. The buying was likely a combination of short covering as traders squared their positions for the week, a realization that the market had gotten ahead of itself and investors finding comparatively attractive yields in Treasuries once again.

Economic data was mixed, but the fact that it wasn't highly bearish was cause for a relief rally. Gross domestic product were slightly bond friendly coming in at a worse than expected -5.7%. The University of Michigan consumer sentiment index was reported at 68.7, nearly in line with optimistic expectations. The Chicago PMI seemed to give bonds and notes the biggest boost after being reported at 34.9; a far cry from the previous 40.1 and the expected 42.

Next week will be even more action packed and the markets should put on a good show to conclude the week with the monthly employment report. Analysts are expecting another draw of over 500,000 jobs. While these types of numbers were shocking a few years ago, it has become commonplace.

Now that Treasuries have turned the corner and we can finally think a little clearer, it looks as though the long bond is well on its way to 119'20 in the September contract at which point be become neutral. If you are still trading June, this translates into 120'30 but you should be rolling into the next contract month (today was the first notice day).

If you are trading the notes, we are looking for the September 10-year to see prices slightly in excess of 118 before short covering has run its course. The September 5-year note should see 116ish again soon.

We have adjusted the infamous short puts gone bad, see below recommendation for an update. Once again, if you would like to learn more about using options to hedge, short option trading or aggressive spread trading...pick up a copy of my book "Commodity Options"; it is available in all major book stores. Sorry for the shameless plug, but I really think that traders owe it to themselves to explore all of the possibilities in speculating and this book was written to open your eyes to alternative approaches to the markets.

Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

May 27 - We recommended that our clients sell the July bond 109 puts for 25 or better, some fills were reported near 30.

• May 28 - For those holding both the 112's and the 109's we lowered the delta of the trade by selling the July 123 calls for 30 and buying the 110 puts for 56. If we detect stability, we will salvage what we can for the long put and hold the strangle.

• May 29 - we sold the long 110 puts this morning for 30 and are holding the lopsided strangle looking for a decrease in volatility and accelerated premium erosion.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

May 26 - Buy the June 5-year note at 116'05 or better ( you should have rolled this into the September contract, which would be equivalent to an entry near 115'06)
• May 29 - Look to liquidate this trade near 115'29

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Fri, May 29 2009, 22:36 GMT

The Bond Bulletin

Fri, May 29 2009, 02:59 GMT
by Carley Garner

DeCarley Trading

Treasuries stabilize...kind of

It has been a grueling couple of days for bond traders as volatility has been high and certainty low. Treasuries have been under swift selling pressure in the face of record breaking government auctions and rumors of decreased foreign demand and a revision of the Fed's AAA credit rating. However, as of Thursday's close, there seemed to be a little less panic and hopefully less volatility going into next week.

All in all, the day's economic news was slightly bearish. On the jobs front, initial claims for unemployment benefits was reported to be 623,000 down from 636,000 in the previous month. Similarly, durable goods orders were reported to be better than expected at an increase of 1.9%. On the other side of the argument, new home sales were slightly weaker than expected.

The real story of the day was the 7-year note auction which attracted the attention of both equity and interest rate traders. As it turns out, the auction was met with solid demand just as the 5-year and 2-year notes were. Bonds and notes crept higher in post auction trade but the catalyst for afternoon buying seemed to be Pimco analyst Bill Gross. Mr. Gross' interview on CNBC lured buyers back to Treasuries after he mentioned that yields were beginning to look attractive. As a broker that had previously advised clients to sell puts, I am wondering why Bill couldn't have mentioned this yesterday...a memo maybe?

If you have been following our short put recommendation in the 30-year bond, we came into the session in a defensive mode. While there was still a considerable amount of room between the futures market and our strike prices of 112 and 109, we deemed the position to be a little too close for comfort in a fast moving Treasury market. Accordingly, we recommended that clients holding both the 112's and 109's sell the 123 calls for 30 ticks this morning. Later in the day, we opted to use the premium collected to cover part of the cost of a July 110 put. The net result is a trade with a dramatically lower delta and less risk assuming that the market doesn't completely melt down. While I still believe that both the 112 and the 109 puts will be profitable at some point before or at expiration, we felt that it isn't wise to ignore the potential risks of a runaway market. I live in Vegas, but I prefer not to roll the dice when it comes to trading. If it appears that things have begun to stabilize we will look to sell the long puts and hold the strangle in hopes of declining volatility. If these types of adjustments or futures option spreads and/or outright option trading interests you, you may enjoy my book "Commodity Options". It is available in all major book outlets.

Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

May 27 - We recommended that our clients sell the July bond 109 puts for 25 or better, some fills were reported near 30.

May 28 - For those holding both the 112's and the 109's we lowered the delta of the trade by selling the July 123 calls for 30 and buying the 110 puts for 56. If we detect stability, we will salvage what we can for the long put and hold the strangle.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

May 26 - Buy the June 5-year note at 116'05 or better

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Fri, May 29 2009, 02:59 GMT

The Bond Bulletin

Thu, May 28 2009, 01:33 GMT
by Carley Garner

DeCarley Trading

Strong note auction doesn't deter selling

Treasury bonds and notes began the overnight session under pressure and the bearish sentiment continued throughout the trading day. Aside from a temporary wave of buying (most likely short covering) ahead of the 5-year note auction results, Treasuries suffered from one-sided bearish trade.

Coming into the day, it had seemed as though the markets had already priced in the supply issues in regards to new bond and note issues. However, the delayed reaction to the auction confirms that supply concerns remain a major driving force. The U.S. issued $35 billion in 5-year notes with solid demand but the news wasn't enough to deter the bears who see the willingness of investors to buy U.S. backed fixed income products as a long-term invitation for more auctions. Tomorrow's 7-year note auction will likely pack more of a punch for the bulls should the results be respectable. On the other hand, weaker than expected demand could contribute to the downward spiral.

The spike in Treasury yields has raised concerns over higher borrowing costs and in turn eliminated much of the optimism surrounding equities. Weakness in stocks may eventually lead to reallocation of cash back into bonds and notes. After all, if investors were willing to buy U.S. backed securities at a next to nothing yield they should be interested in doing so at moderately low, but dramatically better, yields. This doesn't necessarily mean that we are expecting a bull market to emerge, but markets normally don't go straight down.

We are the first to admit when we are wrong, and that is exactly what we have been over the last 2 or 3 trading sessions. We had been expecting a technical bounce; instead the selling has accelerated. The magnitude of the recent drop in interest rate products and spike in yields suggests that there is a considerable amount of panic in the marketplace. Traders and institutions are rushing to hedge their interest rate risk by selling futures.

If you are participating in our short put recommendation, we will likely be looking to adjust the trade tomorrow in hopes of mitigating risk of exposure. In an attempt to shift the break-even point on the original 112 put we recommended to sell the July 109's for 25 - 30 ticks. While this improves the odds on the 112, it adds to the risk below 112 and if prices drop enough is equivalent to "doubling up". It seemed like a good idea this morning, but by the close we were regretful. However, bonds have a tendency to push traders to their limits and I am near mine. Accordingly, there seems to be a good chance that most of the shorts are already in and some relief could be seen in the next day or two. That said, there is no reason to allow a losing trade to run wild, if you need help or have questions, contact me.

Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

May 27 - We recommended that our clients sell the July bond 109 puts for 25 or better, some fills were reported near 30.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

May 26 - Buy the June 5-year note at 116'05 or better

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Thu, May 28 2009, 01:33 GMT

The Bond Bulletin

Wed, May 27 2009, 03:58 GMT
by Carley Garner

DeCarley Trading

Treasuries remain sluggish

Despite an overnight flight to quality bid on news of a South Korean nuclear experiment, bonds and notes spent most of the session trading in negative territory. Supply concerns, higher equities and a better than expected reading of consumer confidence allowed the bears to maintain control; however, we question whether this will continue to be the case in the coming sessions.
An oversold technical environment and a similar fundamental picture in which traders may be getting "too bearish" (too short), could lead to a sharp short-covering reversal.

Even a strong 2-year note auction was unable to lift the spirits of bond traders. The U.S. government issued $40 billion in the short term securities today, but there are still $35 billion in 5-year notes and $26 billion in the 7-year maturity to be auctioned later this week. The Fed is expected to be buying 3 and 4-year notes tomorrow but their appetite for their own fixed income products seems to be diminishing. That said, they may look to surprise the markets into lower rates by aggressive buying.

Last week we mentioned that " We can't rule out another sell-off to bring the June bond to the mid-118's but are looking for the 30-year to see 122'05 again in the near-term." Today's lows reached our mid-118 possibility in the 30-year bond and we are expecting some sort of reversal, even if temporary. We think that the T-bond has the potential to see 121'26 by the end of the week.

Similarly, we have been mentioning that the 10-year note could travel to 119. Today's trade brought the June futures slightly beneath our target, but we feel as though the risk is to those short this market; 120'20 in the June contract isn't out of the question in the coming sessions. We have been bullish the 5-year note from the mid-116's to 116, and still hold this sentiment.

If you are participating in, or following, the recommendation to sell the July bond 112 put don't panic. The trade is underwater due to increased volatility and what appears to be speculative put buying. However, the strike price is still considerably out of the money and with about 30 days to expiration the slightest bounce in the futures market should implode the option premium. That said, we are monitoring the position closely.

Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

May 26 - Buythe June 5-year note at 116'05 or better
Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Wed, May 27 2009, 03:58 GMT

The Bond Bulletin

Sat, May 23 2009, 18:29 GMT
by Carley Garner

DeCarley Trading

Turn-around Tuesday?

Treasuries sunk ahead of the holiday weekend as the "big guns" began running for the doors after Wednesday's FOMC release. Bond and note volume was surprisingly healthy, but it seems to have been largely stop running as opposed to fresh short positions.

Aside from chatter of a downgraded credit rating for the U.S., there was very little to trade on and even less for me to write about.

Healthy stocks and a weak dollar both worked against Treasuries, but I am wondering if this will last going into next week. The U.S. dollar index seems to have extended itself a bit too far, too fast. While the mid 78's are possible, a strong rebound appears to be brewing. Assuming this is the case, we could see bonds and notes follow suit. That said, we are leaning slightly higher in equities which may work against the magnitude of any potential bond rally.

We can't rule out another sell-off to bring the June bond to the mid-118's but are looking for the 30-year to see 122'05 again in the near-term. Accordingly, we had recommended to sell the July 112 puts yesterday for 25. Clearly, those entering today would have gotten a better price but what can we say, we aren't perfect. Nonetheless, it seems like the odds favor an opportunity to buy the option back at a profit at some point next week.

We noted that the 10-year note may travel to 119, and it did. However, we are bullish from such levels going forward. The 5-year note, on the other hand, may have room to move on the downside. We wouldn't be surprised to see trade slightly below 116 but turn bullish in the mid to low 116's.

Sorry so short, enjoy the long weekend!

Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Sat, May 23 2009, 18:29 GMT

The Bond Bulletin

Thu, May 21 2009, 21:52 GMT
by Carley Garner

DeCarley Trading

Fed disappoints bond bulls

Yields across the curve spiked higher today as the Federal Reserve failed to live up to expectations. Traders were buying in anticipation, and with confirmation, of more aggressive Treasury buying by the Fed, but the market was disappointed in the lack of action taken. As has been the case since the beginning of quantitative easing talk, the Fed's bark is bigger than the bite. The Fed bought $7.4 billion of the days $45 billion offered. Along with the Fed's timid buying, the government announced that it would sell a massive amount of new debt next week.

Bond and note selling was undoubtedly exaggerated by stop running and technical selling in light volume trade. Keep in mind that many traders are in a hurry to get on with the holiday weekend...and position squaring was full speed ahead.

Also keeping pressure on Treasuries is the struggling U.S. greenback. Notes and bonds have been somewhat correlated with the dollar. Today's plunge below 81 in the June dollar index is seen as a deterrent to foreign investment in U.S. securities and may even lead to the eventual withdrawal of some overseas investors. However, we believe that the dollar may be finding a near-term low in the 80 area...but can't rule out a probe to 78. If this is accurate, we should see similar trade in Treasuries.

We see support in the 30-year bond near 120, but more meaningful support and a likely target just under 119. Likewise, the note may travel to the 119 area but we think that support at such levels will hold in the near term. If you are trading the 5-year note, the mid-115's offer heavy support.

Our clients were selling puts this morning against the downturn. They were recommended to sell the July 112 puts for 25 ticks. Fills were ranging from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

May 21 - Our clients were recommended to sell the July bond 112 puts for 25, fills ranged from 25 to 23. This option traded at just 10 ticks early in the day but an explosion in volatility allowed us to sell the option for a considerate amount of premium. The premise of the trade is to profit from declining volatility and or positive bond movement. The strike price is over 7 handles out of the money to give the position a considerable amount of room for error but of course the risk is unlimited below 112.

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Thu, May 21 2009, 21:52 GMT

All about the Fed

Thu, May 21 2009, 05:23 GMT
by Carley Garner

DeCarley Trading

We have noted a lack of guidance in the Treasury markets and a consequential reliance on equity market direction. However, bond and note traders paid little attention to Wall Street on Wednesday. Instead, the focus was on the Fed.

The market traded relatively sideways pre-FOMC minutes release but did display unusual strength in the face of sharply higher equities. Following the FOMC and the Fed's hint of more aggressive Treasury buying, bonds and notes were heavily bid. Based on early morning trade, it is clear that many traders were anticipating such sentiment from the Fed. The Fed's specific comment insinuated that they could icnrease its purchases of securities to help spur the economic recovery.

Based on assumptions made by the Fed Funds futures and other short -term vehicles, it seems as though the market isn't expecting a Fed rate hike until 2010. The Fed Funds futures priced in a rate of .5%, don't forget that we are currently at 0-.25% by March expiration.

Most interpretations of the Fed minutes suggest that the Fed isn't quite as optimistic as it was in the previous meeting. Most meeting participants seem to believe that it could be five to six years before the U.S. economy returns to its potential.

The release of the FOMC minutes, and more importantly the market's reaction, has proved our analysis to be a bit off the mark in terms of immediate direction. However, today's rally may have been partially sparked by position squaring as traders are taking off early ahead of the holiday weekend; also, it seemed to be much tamer than previous reactions to similar announcements. We recommend being on the sidelines, but if we had to pick a direction we continue to lean lower. There is critical resistance in the 30-year bond at 122'20 and 121'06 in the 10-year note. We become bearish in the 5-year note in the high 117's.

Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

Flat

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Thu, May 21 2009, 05:23 GMT

The Bond Bulletin

Wed, May 20 2009, 03:37 GMT
by Carley Garner

DeCarley Trading

Rates stabilize

Interest rate products stabilized on Tuesday allowing the market to digest yesterday's swift sell-off. We warned you last week that this would be a slow news week...and it has been. The only guidance that Treasury traders seem to be relying on is the direction of equity trade. Unfortunately, thin stock volume has resulted in yesterday's questionably relentless rally and today's refusal to correct. While we have been bullish the S&P since the index made its low in the 870's we were a little surprised at the magnitude of the rally. That said, we still believe that the S&P will make its way higher, approximately to the 940 area; if this is an accurate assumption, Treasuries should find themselves retesting the May lows and slightly beyond.

Keeping bonds and notes under pressure are assumptions that the U.S. economy is showing signs of recovery. The newest evidence supporting this theory is a statement made by Gary Stern, President of the Minneapolis Fed; "As we get into the middle of 2010 and beyond, I would expect to see a resumption of healthy growth." He also downplayed the role of deflation, "To date, there is scant evidence of deflation in so-called core measures of inflation." He added, "If economic growth resumes in the United States as I expect, the threat of deflation should diminish commensurately."

Additionally, while the Fed has taken a breather when it comes to note issuance, corporations have not. Barclays is looking to sell at least $500 million in non-guaranteed 10-year notes and Verizon issued nearly $4 billion in various 2-year instruments.

We are going to stick with our original call for now...We think that the T-bond could see 119'08 and maybe even the mid'118's before finding buyers. Note traders should look for support near 119'11 and again at 119. The first area of support for the 5-year note futures looks to be near 116'21 with 116'01 being significant support.

Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

May 7th - Sell the June 117 puts for 25 or better
• May 11 - This trade was exited near 10 to 12 ticks to take a quick profit

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Published on Wed, May 20 2009, 03:37 GMT

The Bond Bulletin

Tue, May 19 2009, 00:52 GMT
by Carley Garner

DeCarley Trading

Fed buying goes unnoticed

The Federal Reserve stepped in to buy Treasuries in the 10 to 23 year range totaling about $3.18 billion but traders were focused on stocks. The Fed is expected to be back on the "buy side" on Wednesday and Thursday. While this may not be enough to turn the tide, it could keep a floor under pricing. Keep in mind that much of the recent short covering rally (resulting in sharply lower yields) is said to be attributed to anticipation that the Fed would increase the pace at which it is acquiring its own securities, but failure for this to materialize has eliminated the bullish sentiment.

The selling pressure came on light volume, but you had probably already assumed this. It is highly likely that traders will extend the already long Memorial Day weekend into a mini-vacation. The major news event slated for this week appears to be the release of the FOMC minutes on Wednesday afternoon. My guess is that come Thursday, there will be even less volume flowing through the Treasury markets.

The theory that housing stability is necessary for an economic recovery has kept housing data in the spotlight. Today the U.S. Department of Commerce announced that building permits and housing starts were in line with, or better than analyst estimates and better yet have made moderate improvements from last month. In similar news, the NAHB (National Association of Home Builders) Index portrayed a slight increase in homebuilder sentiment. The index moved from 14 in May to 16 in April.

As mentioned in Friday's report, we are leaning lower in Treasuries and looking for an eventual retest of the recent lows and possibly slightly beyond. We think that the T-bond could see 119'08 and maybe even the mid'118's before finding buyers. Note traders should look for support near 119'11 and again at 119. The first area of support for the 5-year note futures looks to be near 116'21 with 116'01 being significant support.

Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

May 7th - Sell the June 117 puts for 25 or better
• May 11 - This trade was exited near 10 to 12 ticks to take a quick profit

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

April 30 - Our clients were recommended to sell the June Eurodollar near 98.045
• If you are uncomfortable with the possibility of a retest of the January highs, you can buy a June 99.00 call for about 13 tick to limit your risk on the trade to about $212 before transaction costs
• Keep in mind that this market isn't far from its all time high, if you are comfortable being short and are properly capitalized you may want to consider adding on if we see a sharp rally.

Published on Tue, May 19 2009, 00:52 GMT

The Bond Bulletin

Thu, May 14 2009, 01:50 GMT
by Carley Garner

DeCarley Trading

Quiet session ahead of inflation data

Treasury traders behaved themselves as they prepare for tomorrow's CPI data. They were offered a glimpse of the inflation picture through today's PPI figures. If producer prices are a clue, the CPI should end up being a non-event as well. PPI was reported at an increase of .3% and CPI is expected to flat line.

We will also hear about industrial production and capacity utilization along with consumer sentiment. However, my guess is that the market driver will be equities. Don't forget that tomorrow is option expiration for stock and stock index futures options, so it could make for a volatile session. Based on recent action in stocks, it seems as though they may be in store for a retest of the highs (about 930/940 in the S&P). If this is the case, Treasuries could see the opposite price action.

Today's early morning bond and note bid is being attributed to weak jobless data. The weekly jobless claims tally came in considerably higher than expected at 637,000. That said, my belief is that today's trade was technically driven.

Yesterday we mentioned resistance near 123'15 and today's day session high of 123'12 wasn't far off. I wouldn't bet the farm on it, but it seems as though the market may have found a near-term top. Assuming that equities grind higher into expiration tomorrow Treasuries could see the mid to low 122's. On the other hand, our original target was 124 so don't be shocked if we see it before reversing.

Note traders should look for significant resistance near 123, but we aren't sure that the market will have enough steam left in the rally to see such levels this time around. First support is coming in near 121'15 with the next area being 120'03.

The Five year note may become a good sell near 118, stay tuned.

* 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.

Treasury Bond and Note Option Trading Recommendations
**There is unlimited risk in naked option selling.

May 7th - Sell the June 117 puts for 25 or better
• May 11 - This trade was exited near 10 to 12 ticks to take a quick profit

Treasury Bond and Note Futures Trading Recommendations
**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations
**There is unlimited risk in trading futures.

April 30 - Our clients were recommended to sell the June Eurodollar near 98.045
• If you are uncomfortable with the possibility of a retest of the January highs, you can buy a June 99.00 call for about 13 tick to limit your risk on the trade to about $212 before transaction costs
• Keep in mind that this market isn't far from its all time high, if you are comfortable being short and are properly capitalized you may want to consider adding on if we see a sharp rally.

Published on Thu, May 14 2009, 01:50 GMT

The Bond Bulletin

Wed, May 13 2009, 01:17 GMT
by Carley Garner

DeCarley Trading

Supply, out of sight out of mind

The Fed has taken a break from the relentless issues of longer dated fixed-income securities and Treasury bears have taken the opportunity to lock in profits. Short covering has lifted bonds and notes from oversold levels but it will be left to the bulls to keep the momentum going.

We have been targeting 124 in the 30-year but it now seems like the market may run out of steam near 123'15ish. Notes on the other hand, have reached our expectations leaving us without much of an opinion as to the direction of trade in the next day or two. Continued weakness in equities could lead to follow through buying in the note to just above 123 but we wouldn't be willing to try to trade it. However, if we do see such levels it is likely that we will become bearish.

A possibly more likely scenario may be a reversal an or near current resistance levels and a possible retest of the lows. It seems to us that the stock market correction may have run its course (at least for now). We note heavy resistance near 877, assuming this level holds we could get an attempt at a retest of the equity index highs. In turn, weakness in across Treasuries may return.

Helping the market bid was a weaker than expected retail sales figure. Analysts were expecting sales to remain unchanged, but a draw of .4% sent value investors reeling on Wall Street and triggered a flight to quality bid in bonds and notes.

Sorry so short!

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

May 7th - Sell the June 117 puts for 25 or better

· May 11 - This trade was exited near 10 to 12 ticks to take a quick profit

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

April 30 - Our clients were recommended to sell the June Eurodollar near 98.045

· If you are uncomfortable with the possibility of a retest of the January highs, you can buy a June 99.00 call for about 13 tick to limit your risk on the trade to about $212 before transaction costs

· Keep in mind that this market isn't far from its all time high, if you are comfortable being short and are properly capitalized you may want to consider adding on if we see a sharp rally.

Published on Wed, May 13 2009, 01:17 GMT

The Bond Bulletin

Tue, May 12 2009, 02:28 GMT
by Carley Garner

DeCarley Trading

Interest rates creep lower

The Fed was at it again, but this time they were buying securities on the short end of the yield curve. The Fed purchased $6 billion in fixed income securities maturing in 2012 and 2013 (the realization that these are now considered short-term debt instruments makes me feel old). At the same time, they auctioned $34 billion in 4-week bills.

It was another data challenged session, leaving market direction up to equity market action and of course the Fed. Traders are noting that there don't seem to be as many institutional or large spec traders as there have been in years past and this makes the Fed an even bigger "player" than it may otherwise be. On the other hand, the stock indices pared early morning losses, which worked directly against the Treasury rally. It is clear that the near-term direction of bonds and notes will be highly dependent on the path taken on Wall Street. We are still leaning slightly lower in stocks and higher in bonds but remind traders that it is important to be nimble as circumstances are changing quickly.

The U.S. trade deficit widened in March but beat analyst estimates by coming in at a negative $27.6 billion to prevent the U.S. dollar index from a technical rebound and keeping bond buying modest.

Today's pause makes us wonder whether the bond will find follow through buying to bring it to our 124 target, just under 122 in the note. If you are long this market, we recommend playing it close to the chest as we cannot rule out another run at the lows. If this turns out to be the case, we will once again be looking for ways to gain a bullish stance.

Last week we noted that bonds and notes were both a buy near 120; we hope that you took our advice! No we are suggesting that you lighten the load. We are leaning higher, but the risks have increased and there maybe better opportunities to be bullish in the coming sessions.

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

May 7th - Sell the June 117 puts for 25 or better

· May 11 - This trade was exited near 10 to 12 ticks to take a quick profit

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

April 30 - Our clients were recommended to sell the June Eurodollar near 98.045

· Keep in mind that this market isn't far from its all time high, if you are comfortable being short and are properly capitalized you may want to consider adding on if we see a sharp rally.

Published on Tue, May 12 2009, 02:28 GMT

The Bond Bulletin

Tue, May 12 2009, 02:25 GMT
by Carley Garner

DeCarley Trading

Treasuries Rally from oversold conditions

T-Bonds and notes found a much needed bid to pull the complex from oversold conditions. The Fed, and investors alike, went bargain hunting on the long end of the yield curve. The Fed purchased $3.51 billion in securities ranging from maturities of 17 to 30 years. Also helping yields creep lower is the fact that supply issues are out on the table and there shouldn't be any freshly issued government securities until the end of May. Perhaps the out of site out of mind mentality will pave the way for a recovery in the long bond to the 124 area in the 30-year bond and just under 122 in the 10-year note.

On the other hand, chatter among traders suggests that the S&P will have to continue to show weakness in order for Treasuries to resume their up move. Should stocks find another round of buying, bonds and notes may be in store for a retest of the lows; with that said we are leaning higher based on our near-term bearish stance in equities.

While the U.S. government has paused issues, corporations are still looking to raise cash. Microsoft alone is offering $2 billion in 5-years, $1 billion in 10-years and $750 million in 30-years. Other big fixed income sellers were Allstate and Anheuser-Busch.

Player volume continues to struggle and the lack of participation will most likely extend throughout the summer. In all honesty, bond and note volume in both options and futures really hasn't recovered from the excessive volatility last fall (for those of us trying to make a living through transaction costs it makes for a challenging environment) and this should make for an even quieter than normal summer session.

Last week we noted that bonds and notes were both a buy near 120; we hope that you took our advice!

Our clients were advised to sell the 117 T-Bond puts last week near 25 (some were filled a bit better and some a bit worse depending on their timing) and were recommended to buy them back today near 10 (fills ranged between 10 and 12). Assuming a fill of 25 and 12 the profit was about $200 per contract before commissions and fees. This type of trading won't necessarily make you rich overnight, but the idea is to hit base hits. If you are interested in this type of philosophy, stay tuned for our upcoming PFG webinar titled "Trade Like a Girl". I will keep you posted on the details!

* 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.

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

May 7th - Sell the June 117 puts for 25 or better

· May 11 - This trade was exited near 10 to 12 ticks to take a quick profit

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

April 30 - Our clients were recommended to sell the June Eurodollar near 98.045

· Keep in mind that this market isn't far from its all time high, if you are comfortable being short and are properly capitalized you may want to consider adding on if we see a sharp rally.

*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.

Published on Tue, May 12 2009, 02:25 GMT

Treasuries are heavy, but bottom may be near

Wed, May 6 2009, 09:58 GMT
by Carley Garner

DeCarley Trading

Light action and better than expected economic news kept bond and note futures under moderate pressure. While Treasuries spent most of the day in the red, the bearish conviction was weak. Accordingly, I sense that a bottom may be looming. That said, this is a market that is known for violent trend reversals and today's trade certainly wasn't violent. I suspect that we could see some sort of key-reversal low in the coming days that could extend to, or below 120 in the T-bond and the mid 119's in the T-note. Then again, this market has taken on some new characteristics and could be forming a rounding bottom as we speak (likely just to prove us wrong).

Market influences were mixed. The ISM manufacturing index was reported at 43.7, better than the prior reading of 40.8 and expectations for 42. Conversely, a relatively successful action of 1 and 3 year notes seemed to keep a floor under Treasury prices.

There is a lot of anticipation over the upcoming bank stress test results as well as Friday's employment data. Each of these events leaves risk of market exposure relatively high and makes trading in this arena much more difficult than what it would normally be.

We would love to sell puts beneath this market, and maybe go long futures in the 5-year note or synthetics in the 10-year but are patiently waiting for a lighter risk opportunity. If you want to play the upcoming event risk, we recommend playing it safe. In a perfect world, we would like to be long the June 5-year near 116 but if you are scared of missing the boat, you may look to purchase the futures near 117 and buy a June 117 put. This will give you 17 days in the market with limited risk and allow you the ability to peel one leg of the trade off at a time in either favorable or adverse market moves.

* 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.

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

Flat

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

April 30 - Our clients were recommended to sell the June Eurodollar near 98.045

If you are uncomfortable with the possibility of a retest of the January highs, you can buy a June 99.00 call for about 13 tick to limit your risk on the trade to about $212 before transaction costs
Keep in mind that this market isn't far from its all time high, if you are comfortable being short and are properly capitalized you may want to consider adding on if we see a sharp rally.

Published on Wed, May 6 2009, 09:58 GMT

No signs of life

Wed, Apr 29 2009, 08:15 GMT
by Carley Garner

DeCarley Trading

Seasonal tendencies and supply concerns have weighed heavily on Treasury trade in recent weeks; today's failed attempt at a rally seems to be glaring evidence that this continues to be the case. Better than expected news from the Conference Board in regards to consumer confidence and $35 billion in 5-year notes being auctions at higher than expected yields put immediate pressure on bonds and notes. What started as a moderately positive session, quickly turned into swiftly negative Treasuries. The 30-year bond suffered losses in excess of two handles from high to low.

The Treasuries efforts to manipulate interest rates via quantitative easing don't appear to have been hugely successful in the Treasury markets. However, it is important to realize that while the market hasn't reacted to the confirmation of the Fed's plan to purchase Treasuries, the rally that paved the way for prices to hover at such historically high (low yield) prices was founded on the possibility of government intervention in the marketplace. Conversely, mortgage rates have fallen to historical lows suggesting that the Fed's efforts have had some impact in peripheral markets.

Yesterday's session brought a dramatically stronger dollar, but currency markets spent today eliminating the premium built into the greenback. The lack of follow through buying likely helped to set the bearish tone in the long bond. Trade across the financial markets has become overly choppy and even more predictable than what it normally may be. Accordingly, we are inclined to take a few steps back and encourage traders to either be on the sidelines or involved with mitigated exposure.

The overnight rally nearly met our target for the 10-year note but fell short of our expectations for the 30-year bond. As a result, we are becoming uncomfortable with our previous recommendation to sell June Bond 118 puts and will be cautious going forward. While there is still plenty of room between the market and our strike price with only 24 days until expiration, this trade has strayed from our original intention of being a short-term venture looking to capitalize on a market bounce. Bounces have come and gone, but without the momentum that we had anticipated.

We see significant support in the 30-year near 123'04 and resistance at 125 and again near 126'19. Note traders should look for support near 121'03 with resistance at 122'22 (today's high). Intermediate resistance may be found near 122'09.

* 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.

Treasury Bond and Note Option Trading Recommendations

**There is unlimited risk in naked option selling.

April 17 - We recommended to sell the June Bond 118 puts near 20.

April 22 - Those of our clients that didn't get in on the original recommendation were able to get in today at better prices. Fills were coming in anywhere between 24 and 21.

· April 28 - Clients were advised to liquidate this position at a small loss prior to the FOMC announcement due to excessive event risk.

Treasury Bond and Note Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

Eurodollar Futures Trading Recommendations

**There is unlimited risk in trading futures.

Flat

Published on Wed, Apr 29 2009, 08:15 GMT

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Fundamental

The Bond Bulletin

Rocky auction, but Treasuries survive

Pre−Fed volatility non−existent

Supply, supply...supply

Mixed news, oversold bounce

Bonds beaten down

The highs could be in

Key reversal?

Treasuries waffle ahead of data

Treasury Bond and Note Option Trading Recommendations

Treasury Bond and Note Futures Trading Recommendations

Countertrend Friday but Monday may be more telling

Bonds may be pricing in stock correction

Treasury rally on pause

Stocks and bonds rally....together?

Long−bond uch'd

Treasuries on the move after ADP estimates

Treasuries digest

Auctions on tap

Overnight rally but counter−trend Friday

Treasury bull getting tired?

Tepid inflation sparks bond and note rally

Warming up with the 3−year auction

"Less bad" jobs data, weaker Treasuries

Choppy trade builds suspense over non−farms

Overflow buying from yesterday's 7−year note auction

Rough auction weighs on bonds

Treasuries bogged down by supply

Wild ride but higher

Treasuries bounce on technical buying

Bonds break down, but support looming

Chop, chop, chop

Again...What a difference a day makes for Treasury trade

Treasuries undecided

Treasuries extend rally, long bond 120?

Treasuries mixed ahead of data and holiday

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FOMC statement looms

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All about the Fed

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Treasury Bond and Note Option Trading Recommendations

Treasury Bond and Note Futures Trading Recommendations

Eurodollar Futures Trading Recommendations

The Bond Bulletin

Interest rates creep lower

Treasury Bond and Note Option Trading Recommendations

Treasury Bond and Note Futures Trading Recommendations

Eurodollar Futures Trading Recommendations

The Bond Bulletin

Treasuries Rally from oversold conditions

Treasury Bond and Note Option Trading Recommendations

Treasury Bond and Note Futures Trading Recommendations

Eurodollar Futures Trading Recommendations

Treasuries are heavy, but bottom may be near

No signs of life

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