T-Bond trading comment (August 31, 2007)

First day in a while where we didn't have an inflow of bad news! We are making progress here. We arrived this morning at our offices with the market ticking down half a buck after challenging (again) and failing (again) on the 112 line. The major part of this fall was on the back of the President G. W. Bush announcement that the government would expand its role to help deal with the subprime problem and the fact that foreign stock markets were gaining ground.

Around 8h00, the market started to catch a bid in prevision of the economic data that was coming out in half an hour. These data points came in on the better side and thge market promptly loss all the wind it had previously gained. From that point on, the market was stuck in some illiquidid range trading pattern until 10h00 when Bernanke spoke in Jackson Hole. Bernanke didn't say anything unexpected, as the Fed is trying to do everything it cans to hold everything until its September 18th meeting. As expected, Bernanke reiterated the fact that the Fed is standing ready for action in case the current liquidity crisis grows into a full grown credit crisis. By the way, now could be a good time for another cut in the discount rate as Libor is still fixing higher and higher and this is no good.

At 11h00, President Bush made his allocution on the subprime crisis. Nothing big their either. They will not help the investors and they will not help the people who bought a house they could not afford, but they will help the ones that have fallen behind in their mortgage payment. Not sure what this means.... If you bought a house you couldn't afford you probably are behind in your payments, so.... In the meantime, the T-bond was still gaining some speed, but this run stopped as we neared the 112 line. Again, the market rejected the breach of this resistance and went slamming back down... We closed at 111-20 on diminishing liquidity.

Next week, we have two things to look at. NFP and ISM data points. This should give or take some confidence to the market.