T-Bond trading comment (August 15, 2007)

This was an interesting day today. We are down 12/32 over the day and plenty of action went on today. We arrived at our desk this morning playing with th 110-00 line and guess what, we again rejected it. The market afterwards braced himself for a rather stronger CPI since yesterday's PPI was a bit stronger. But the CPI got out exactly as expected and apparently the major part of the difference between the PPI and CPI was due to different ways of measuring inflation...

At the same time, the stock market was looking to go higher and so we went lower in the T-Bond. From that point on we hitched lower as the stock market climbed. A low of 109-11 was reached when the stock market started to puke nad we promptly went higher but this time the T-bond showed a bit of self desire and went back down as people are putting on steepners or taking off flattners. This movement is pretty evident as the T-note and five year notes both climbed 8/32 while the T-Bond is losing 12/32... People selling the long end and buying shorter maturities. This means that market participants see that the Fed will cut rates in the near future... By the way, eurodollars are pricing rate cuts...

Tomorrow, we are having housing startsand Philly Fed... Philly Fed should go through the roof if it follows today's Empire Index.