Bond Traders Await Friday's Non-Farm Payrolls Report
Friday, September 2, 2011
The current price consolidation seen in Bond futures may not last long, especially with current prices near all-time highs. Traders looking for a breakout from the current price consolidation may wish to explore the purchase of a strangle in Bond futures options. For example, with December Bonds trading at 136-15 as of this writing, the October Bond 138 calls and the 133 puts could be bought for about 2-28, or $2,437.50, not including commissions. The premium paid would be the maximum potential risk on the trade, which would be profitable at option expiration in late September should the December futures be trading above 140-14 or below 130-18.
Fundamentals
Bond traders will not be extending their Labor Day holiday, as it will be all hands on deck today with the highly anticipated August Non-Farm Payrolls Report due out this morning. Employment rolls are expected to have increased by 75,000 jobs in August, with private sector employment expected to have risen by 110,000, making up for the continued job losses in the government sector. Going into the report, traders had a slew of data to digest, including a lower than expected increase in personal income which rose by only 0.3% in July, as well as a slightly disappointing report from ADP showing a private employment increase of 91,000 jobs. On the positive side, July factory orders rose by a higher than expected 2.4% in July, with strong demand seen in the transportation sector. The Chicago purchasing managers index for August came in much better than expected at 56.5, with the employment index rising in July. Given the mixed economic signals, it is no surprise that Treasury bond prices have moved into a consolidation pattern during the past several trading sessions, although at a much higher price level than we saw at the start of August. Today's report could tip the Fed's hand either for another round of some sort of QE3 if employment is once again below expectations, or allow the Fed to keep the status quo and eventually begin serious discussions to finally unwind the current accommodative monetary policies that have been in place for nearly 3 years.
Technical Notes
Looking at the daily continuation chart for Treasury Bond futures, we first notice what appears to be a symmetrical triangle technical pattern forming. This is considered a consolidation pattern; traders would need to wait for a breakout from the pattern to help determine the probable direction of the market's next move. Prices are currently hovering near the top end of the consolidation, but this morning's payrolls report could be the catalyst to move the market out of its range. The 14-day RSI is well off its highest readings, but has stabilized at a supportive level of 59.57. Support is seen at the August 11th lows of 133-24, with resistance seen at the contract highs of 139-28.
Mike Zarembski, Senior Commodity Analyst
