Safe Haven Bid Less than Impressive

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Treasuries have been decisively undecided in recent sessions.  The long bond looks to be attempting to shake-off its overbought status without a large, or even moderate, correction.  However, tomorrow’s employment report will either confirm or bury this speculation.

All eyes are on the non-farm payrolls data due out early in the morning.  It normally comes out on Friday but the Fourth of July holiday resulted in a reschedule.  Payroll giant ADP issued their jobs data estimate this morning but the numbers were below consensus estimates and gave bonds a boost.  Most analysts are looking for a draw of fifty thousand jobs; ADP is calling for a draw of seventy-nine thousand.  While there was a definite knee-jerk reaction in all of the financial markets, most traders have learned not to take the ADP number as gospel.  They have had several large misses since there inception of the report (last year?)

Trading volume was light, so the buying may have been exaggerated.  Although until the security and energy markets begin to “behave” Treasuries will have an upside bias despite prices being overbought.  Perhaps the 30 year bond will makes its way to 116’24 as previously expected.  With that said, I can’t help but feel as though interest rate products have already priced in a weak employment report.  If I am right, it may be difficult for the news to spark a sustainable rally.  Aggressive traders may want to sell futures on any spike to the high 116’s in the long bond and high 114’s in the T-note.  Others may look to sell calls against a move higher.  I like the August 119’s but wouldn’t sell them for less than 15.

Option Recommendations

**There is unlimited risk in naked option selling.

June 27 – Sell the August 119 calls for 15 ticks or better…be careful with this!!

·        June 30^th – Place a GTC order to buy this back for 5 ticks or better

Futures Recommendations

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Flat

There is a substantial risk of loss in trading futures and options.

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