July 6th, 2009

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Slow news week, and worse volume

Bonds and notes spend much of the post-holiday trading session under pressure, but the lack of liquidity allowed small bouts of short covering to pare losses.  Eventually, Treasuries crept into positive territory.

Also providing lift to prices was strong demand for $8 billion 10-year TIPS auction.  The issuance brought a 2.51 bid to cover and a 49.7% indirect bidder rate.  Even at moderately lower yields than was the case a few short weeks ago, foreign investments are still comfortable in dollar backed assets.

According to the most recent issue of Barron’s, a semi-annual sampling of interest rate forecasters believe that the highs are in for interest rates based on the benchmark 10-year note.  However, the same group thinks that the note could be trading at a considerably higher yield than the current 3.5ish by the middle of next year.

Barron’s also, provided some interesting economic analysis done by those recently interviewed.  According to Joseph Carson, director of economic research at Alliance Bernstein, “Massive monetary and fiscal stimulus” will produce a “stronger-than-expected cyclical recovery.”  Therefore, he believes that rates on the long end of the curve will be forced higher.

Brian Wesbury, chief economist at First Trust Advisors, was noted as saying, “We expect a V-shaped recovery, and with 3.5% to 4% real GDP at some time during the next four quarters, (and) the Fed is not going to be able to justify holding rates near zero.”

Based on my research, however, it does seem like the consensus is for a Fed that will stand pat for the remainder of 2009.  Hopefully steady policy will translate into price stability.  After the rollercoaster ride over the past 12 months, a reversion to “normalcy” would be nice.

* 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.

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.

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Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
cgarner@DeCarleyTrading.com
1-866-790-TRADE
Local : 702-947-0701

www.CarleyGarnerTrading.com
www.DeCarleyTrading.com

*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.