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The Bond Bulletin

Tepid inflation sparks bond and note rally

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

DeCarley Trading  |  View company's profile

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, 23:45 GMT