The Bond Bulletin by Carley Garner

[Carley Garner]

May 21st, 2009

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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



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.