T-Bond trading comment (August 06, 2007)

Well it is pretty clear we had a "q" day. Nothing going on in the morning and a good down movement in the afternoon. We spent the major part of the morning stuck between 110-18 and 110-13 on pretty light volume. Contrarians thrived this morning while very short term trenders showed a flat to silghtly negative PnL. Longer intraday trenders had an awful morning but better afternoon. Each time, we reached the 13 area, sellers would die away and buyers would come again and the reverse near 18.... This lasted until 12h47 when the stock market started to soar. At that point, we broke through 110-12/11 and went on to visit the low 110.

At the same time, swap spreads were getting hammered.... This last piece of news is quite interesting as it indicates that the market is depricing the risk associated with a subprime crisis (to the contrary of what Jim Cramer of CNBC thinks....). If this is true, we could the see much lower prices in the coming days.

Tomorrow, the big news is in the afternoon with the FOMC rate decision. No movement are expected but it will be interesting to see how does the Fed balance the subprime meltdown with inflation.