T-Bond trading comment (August 22, 2007)

Another very poor liquidity day! Plus we are still very close to our 110-00 line. There is only two days left before the options expire. Reports on the credit market are still very ambiguous. On one hand we have some reassuring news, saying that subprime problems in the UK are just rubbsih and everything is going to be okay and on the other hand we hear the exact opposite regarding the UK and several big players in the US are closing their subprime lending arms. Just to name a few, Lehman Brothers, HSBC, Accredited, Delta Financial.... Also Quality Home Loans filed for bankruptcy joining an ever growing number of lenders who failed to survive.
In addition to all that, we have some sustained rumours that the Fed is going to cut again the deposit rate.

So in few words, the market seems still uncertain which side to pile on, but the short side is gaining some weight with lower swap spreads, deflation of the EuroDollars' bubble and buying of corporate paper.