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.
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.
