December Treasury Bonds are down 1/32 at 118:01 this morning as I write. The enclosed chart shows that the December T-Bonds fell through some near term support levels yesterday, finishing right on the intermediate support at the trend line coming up from the June lows at 118:00. The excuse is because of an ever increasing supply of bonds to be auctioned this week. This is also the final week of the $300 billion Fed, bond buy-back program. If they are the ones that had held the market up during this buy-back program, then what will the bonds do after this week? The directional movement indicators are bearish but curiously, the ADX line is still meandering at a low level and is, so far, reluctant to turn upwards. I am content to let the existing positions that we have on, stay for now.

Followers of this letter should be short one December T-bond from 119:16 and short one December T-bond (119:00 strike) put option from 1 46/64. Followers should also be long one December T-bond (115:00 strike) put option from 50/64 and short 2 December T-Bond (113:00 strike) put options from 27/64 each for an overall credit of 4/64 or $62.50 gross. There are 25 days left until option expiration.

Oct. 27, 2009
David Hall