T-Bond trading comment (September 20, 2007)

Well the post Fed bull run we had in equities came to an end today but that was not the end for our bear spell in the T-Bond as the market puked another buck and half. Players are just putting more and more steepners on and by doing so kill the long bond. An aggravating factor to this bleeding is several rumours churning around that Asian and Middle-East countries are looking to dump their US holdings. If this turns out to be true, the bleeding will become an hemorrhage.... The news first it the trading desks with the fact that Saudi Arabia might stop its peg to the US dollars. If they do that, the next logical step is to dump their US holdings... So this could become ugly...

Today, the only way to be was to be short. Just take about any point between 7h00 AM and 16h40 PM and you made money on the downside.... This was one of the rare days lately where the long bond and the equities had a strong positive correlation.

Now the question is where we are going from here ? The answer is not very easy. We are entering the autumn months and generally it is pretty hard to find lasting trends at that time of the year. 2006 was more of an exception than the norm. Technically, we are bearish but we have lost four bucks in two weeks so a little respite could also be possible especially since trends usually stop around this time of the year and the markets starts oscillating until mid January. My personal opinion would be to test the downside if you are not already short but most importantly put a at the money straddle with a momentum exit.... This couls yield potentially interesting results...