T-Bond trading comment (October 9, 2007)

Funny day. For those of you who though we would have a follow-through day got it wrong. We finished flat ! Although we didn't have a follow-through, today's pattern was not overly surprising. After the monster move of Friday, we assisted to a consolidation day. Early last night we unsuccesfully tried the lower support before bouncing slowly upward until we hit the first significant support we met on Friday which today served as a resistance (111-04). After that the market readied itself for the FOMC minutes. Minutes were slightly bullish and market started to tank but pretty fast we saw T-bonds stop the bleeding while shorter maturities were not able. This is indicative of flattners being put on and this theory is consequent with what we hear from bond desk around the place trying to convince everybody it is time to put flatners on. In the end, we closed at 110-26 up 1/32.

Talking about the FOMC minutes, they shed a bit of light but were somewhat disappointing. One thing clear, the rate cut was unanimous and done in order to stem a possible recession. For now, the fire seems to be tamed on the recession side but is the inflation fire tamed? The Fed thinks that yes right now inflation looks to be under control but the Fed does not seem to have a lot of control over anything... In any case, the important message to keep in mind after this text is that the Fed looks to be on hold for a bit of time. Consequently Euros went down and curves flattened....

Tomorrow will be a calm day on the economic side, but it will be interesting to see if the market is able to break throught the support we created on Friday at 110-18 and on which we chocked today. If we do break it, the next target is the 110 figure level