T-Bond trading comment (December 5, 2007)

The last two days have been firmly bearish with only slight pick-ups when bad news where hitting the screens... Today was the turn of MBIA... Moody's announced that they were not so sure about MBIA not experiencing a capital shortfall in case of worsening credit conditions. That lilttle upward move was crushed and from the top, we lost a whole dollar in three and half-hours. This move on the T-bond was a bit strange by the way, because it was not mirrored by the 2, 5 and 10 years notes....This means it was probably not some steepners being put on because if so one the other maturity would have gone up... The other solutions are either a large long position was being dumped by someone who took its profit on the recent run-up or someone paying fixed in the long end, thus forcing the receiving bank to sell the 30s to hedge the direction. In any case, this move pushed the T-bond back to its long term fair value against the T-note according to our elasticity model. This move also pushed the T-bond towards its recent support levels sitting in the high 116s.

Today, we saw the ADP number get out on the very strong side at almost +190k.... This is extremly bullish, but we have to be cautious with the number as we have seen in the past ADP sometimes gets it wrong... One more day to wait until the real number... If the NFP comes out that strong, we might see a real bloodbath in the market since in addition to strong employment data we also have the government working hard to find a solution to the subprime crisis...

Did you know?
If you take a weekly chart, you will notice that we have been climbing for 8 straight weeks... When was the last time this happenned ? The answer is in 1998... So what we are seeing in the market is pretty rare and just add to the temptation of selling the market if not already done....