T-Bond trading comment (July 26, 2007)

Well where to start ?

This was a heavy day so lets be methodic. For North Americans, the day kicked off with news that Absolute Capital, a small hedge fund in Australia, was having serious problems in subprime investments and that WestLB had lost approximately 334 mln USD in trading.... On top of that, there were rumours that Asian banks where having problems with mortgage backed loans. All of that spurred a safe-haven buying around 5 this morning and went on until 8h45. At that point, credit spreads were getting roiled as well as stocks futures but still the market gave us a little respite even with bad durable good orders. After our 8h50 pop-up, a heavy offer came in at 109-16 and contained the market except for a little splip-up on the home data (again weaker than expected....) for almost two hours...

Afterwards, all the shorts started to throw in the towel as the equity markets was getting hammered and credit markets were going higher and higher.... Around 11h00, we heard another rumour that Lehman Brothers was in deep trouble with a bridge loan... But nothing more after..... The day continued on heavy trading as people continued to buy in conjunction with the equities going lower. The haemorrhage was stopped around 3h00. This coincided with a remark by Paulson on the subprime, trying to reassure the market.... Interesting to see what happens tomorrow as we have the GDP.... If the GDP gets out as expected the market might retrace back as it did last february after the Chineese meltdown day...

The funny thing with today is that during the normally most active part of the day, 8h00 to 11h00, the market stayed almost flat.... But still players who only played during that time have had nice opportunities. From my count, we had at least 3 very clear opportunities and 1 less clear but always the market went the right side... On a longer term, I think that the bottoming out scenario was the good one. We are now almost 2.5 bucks up...