Blue Notes
Today's Idea
Note and Bond fundamentals have been lackluster at best. The eventuality of rate hikes over the long haul has kept prices from breaking out to the upside, while the Fed pumping money into the economy has buffered the downside. Technically, the chart hints at further sideways trading. Some traders may wish to consider entering into a bear call spread, like selling the May Note 122-00 calls and buying the 123-00 calls for a credit of 0-06, or $93.75. Also, some traders may wish to consider selling a bull put spread, for example, selling the May Note 117 puts and buying the May 116 puts for a credit of 16, or $250. The combined spreads risk $1000, less the combined credit.
Fundamentals
T-Note futures have been sliding in recent sessions, after the Fed strongly hinted at further easing. Recent US housing data has been a major concern for many traders, as the FOMC closely monitors home sales as a measure of personal wealth. The prospect of more free money floating around the economy has some speculators coming back to riskier investments. The weak US Dollar has given overseas investors less incentive to purchase Bonds and Notes. Yesterday's 2-year note auction fell well short of expectations on weakness in direct bids, and foreign bank buying was average, but not at the levels seen recently. It also appears that the Fed may have slowed the rate of their purchases and may extend purchases beyond their June target. Many traders will be monitoring the radiation situation in Japan closely, where widespread radiation could lead to panicked and defensive traders.
Technical Notes
Turning to the chart, we see the June 10-Year Note contract coming back down through the 120 level to the downside. Prices had tested 121-05 on the upside, which has been resistance since the beginning of the year. Prices did briefly test the 100-day moving average, and there simply was not enough momentum to push prices higher. Prices are now at intermediate support at 119. Failure to hold here could result in prices testing support at 117-16.
Rob Kurzatkowski, Senior Commodity Analyst
