T-Bond trading comment (December 11, 2007)

We've been saying for two days that the drop has been too abrupt and that we need to maybe take a breather.... We are almost up two bucks on the day! We did not expect that much

The market opened the day up and kept climbing the whole day in front of the Fed. This move was nice and well expected after rebounding against the 114-10 area yesterday (level on which we took off for our preceding run-up). This part was fun and easy to nibble as the market moved in nice little waves.

Then the Fed came... The Fed did less than what the market expected and the market did not like that... Results everything that was not risky just jumped up as well as credit risk instruments. The FED cut by 25bps the fed fund and the discount... Statement dropped the negative bias on growth but said there was a lot of uncertainty both on inflation and growth... Blabla... Right now, we see high inflation in Europe, China is even worse and GDP is running at 4.9% on a annual basis... Ok, given that with the subprime we could see a slowdown.

Today's move in the market was rather surprising... Such a move to the upside means that the recent downmove (almost 5 bucks peak to through) was just smoke and we are in for good on the long side... Unless of course the market is just stupid and today was again another panic... By the way, don't expect Libor to tighten much, because the Fed's move clearly indicated they are not too concerned about liquidity problems... If they had been, they would have lowered the discount by 50bps, not 25. Granted, they could still flood the market with cash.

Also our daily momentum turned bullish at the settle... So we put on some longs but betting the farm on that would maybe be a bit too bold... Wouldn't be surprised to see the market relax tomorrow.