T-Bond trading comment (September 25, 2007)

We broke overnight the 111-00 resistance we had been toying with for the past few days but closed below it on steepner trades ! We opened higher this morning and broke through the 111-00 resistance overnight while Germany had disappointing economic numbers and the rest of the world was fretting about increased risk about the slowing of the economy. After that the T-bond started to slip as well as the rest of fixed income as equities were opening on a strong foot. The T-Bond fell more than its fair share, even breaking its new 111-00 support as people are still rooting for a more pronounced economic slowdown and thus a steepning of the curve. Sell the long end and buy the short end.

Right now, the feeling in the market is very mixed. Traders are trying to balance in their mind and their book two fears. On one hand we have inflation risks that are increasing with higher oil prices, lower Fed rates and China's overheated economy and on the other hand we have economic slowdown... Which one is the most probable and the scariest? This is the question a lot of the street is asking.