T-Bond trading comment (September 21, 2007)

After a week of heavy selling, we saw some good short covering to close the week. The market opened on a strong foot in the early morning but met some resistance when Warsh talked about inflation. This quickly sent the market to yesterday's electronic closing at 110-01 but speculators were unable to break through it as some strong bids came in to lift the market. At that point buyers just clicked in and from there on we had some smooth sailing to the upside.

The question right now is: Was this just a slight short covering for the week-end before restarting to the downside next week or are we retracing a bigger part of the late downslide ? Right now, there is no reason to root for a bigger retracement as long as we haven't taken out the 111-00 level so this means it looks that there is more room to the downside.

Today was expiration day for options, people who bought there iron butterfly on the first day and sold the most expensive option of the butterfly on September 7 have cleared a hefty profit....