Thursday February 26th, 2009

We’re continuing along with the process of a ‘supply induced rolling concession’ in the Treasury market and we are hard-pressed to see the light at the end of THAT tunnel. Refunding comes next Thursday ($67bil was the last package and we’re certainly going to have to take down more to pay for all of GoBamas plans) and this looms large over the Treasury market despite a very large month-end index extension. This personifies the conundrum we mentioned in our rant just yesterday so we won’t labor the point. That light we mentioned at the end of the tunnel is a supply train, we fear. This in mind, we’ve gotta admit we’re less inclined to sell Treasuries just now and we’ve offered a way to think about this on the attached PDF. Have at it and also have a look at some updated pics of Nate The Freight – 2weeks old and STILL looks more like Joe Lieberman, than me … hey … wait a minute …

 

Here’s an excerpt of what you’ll find in our PDF (linked just below)

dilbert1

Alrighty, then … now that we got THAT off our chest!! Sorry for that but yesterday’s more political spin to our rant is not our usual flavor and then last night, when we saw Dilbert, well … it helped provide us with some closure. Back to your cars. Shows over.

 

Yesterday’s wiggle in the bond markets was most interesting. We’re trying very hard to figure out where to turn next. The following picture is something WE’re looking at …

2sschatz1

Keep in mind, this is one of our most favorite trades (selling here and buying over there) as it’s going in favor of Europe. The trend is clearly in place and this trend has been and remains our friend. That said, we’ve NOT left any profits on the table and most recently, we’ve booked profits nearer to -30bps. With this most recent sell-off in the Treasury market, we’re contemplating going the other way and BUYING Treasuries vs Shatz. This is against our longer term thought process but it’s more about a punt right now. We view the directionality of the yield curve and this spread as good trading proxies. Given that we’re mostly in a trading NOT trending environment, we can’t help but think there’s better levels ‘out there’ to get back into our favourite trade (being short Treasuries at higher levels) and with that in mind, we’re willing to have some skin in the game. With 2yr Treasuries yielding over 1% vs ZIRP for the foreseeable future and with this spread having fully retraced 50% of it’s move over the past couple years AND with this trade at the upper end of its recent trend channel, we think there’s plenty of cover for this idea. We think our risk/reward, too, is very well identifiable. We’ll NOT let this idea get the better of us and will easily ‘stop and reverse’ ourselves back INTO our favourite trade (being short here against a long ‘over there’ if and when needed).

 

Finally, yesterday was Nate The Great’s 2wk birthday … and NO we’re not going to have updates weekly, promise! Given that things are starting to get back to some new sense of ‘normal’ though, thought we’d take this opportunity to link some pictures from yesterday while they are fresh in our minds … Here’s a link to Picasa Web Album (only a few pictures, promise) Nate The Great – 2weeks!!

>> click here for the REST of the story <<

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