Yield curve flattened dramatically, as a prominent Fed watcher pointed out that the current debate on interest rate policy, namely when will they tighten the Fed Funds rate is more likely to be pushed further out to the future. At 9:00 a.m.c.s.t. yesterday the market received some of the worst news ever on consumer confidence and the long end rallied sharply, more on that in a bit. Prior to the consumer report, we were seeing some large bullish flows in the deferred month Eurodollar options especially vs. Mar. 12. The Mar. 12 futures settled up 9.5 ticks at 9732. Shortly after the open with Mar. 12 trading around 9727.5 Fimat started buying the EDH12 9725/9737.5 call spread for 3.5 ticks. They continued to buy it for size as futures ticked up.
Bernanke will be testifying today, and will likely signal that rates will indeed be kept very low, quite possibly not to be raised this year, as long as economic signals led by consumers and jobs continue to wallow in the muck.
As for 10yr. futures the chart below shows prices did rally through over head resistance and are now either poised to work lower or start trending up. If we remain below the 2/16 high of 11629.5 vs. June (118’13.5 vs. Mar.) it is possible we could see prices head lower in a 3rd phase of downward price action. The A move consisting of the move from the high made on 2/5 @ 11830.5 vs. Mar. and 117’16 vs. June to the low made 2/11 @ 11716vs. the Mar. and 116’04 vs. June. The B move was from the 2/16 high of 11813.5 vs. Mar, 11629.5 vs. June to the low made 2/19 11628.5 vs. Mar and 11514.5 vs. June. A possible C move would require that the 2/16 high B not be taken out and prices test the lows from 2/19. That is probably too much to ask so a tight stop above B is warranted. A number of reasons for a strong C move down not to happen exist. We have only had a one day upward correction. Open interest did rise over all on yesterdays move, which has been the recent pattern, up moves bring players in, down moves see them exiting. It will take some surprises from Bernanke to counter the bullish sentiment established yesterday.
More later.
The more likely scenario now especially with the month end buying very much expected to come in this friday is for prices to break above recent high. At that point will have to move to the sidelines and see what the MACD does. If it crosses above trend will likely have switched from current down back to up.
10yr. option players from tuesdays session listed below.
| 092 | Bot | 3750 | M18/19/20c Fly | 7 | 11615+-16 |
| 287 | Bot | 1500 | M14p | 40 | 11531-31+ |
| 287 | Bot | 1000 | M18/20c | 32 | 11802-02+ |
| 370 | Bot | 1000 | K13+/14/15+/16p Condor | 8 | 11609-09+ |
| 560 | Bot | 2500 | J15P | 18 | 11727+ |
| 617 | Bot | 1000 | M20/21c | 7 | |
| 660 | Bot | 4000 | J15+p | 27 | ^M11726+ |
| 660 | Bot | 4k | J15+p | 27 | 11726+ |
| 660 | Bot | 500 | J16 Stdl | 133 | ^H11621 |
| 685 | Bot | 1000 | J17c | 24 | ^M11600+ |
| 685 | Bot | 500 | M16+ ^ | 246 | 11615+ |
| 714 | Bot | 750 | J+15p/-18c Combo | 1 | ^M11617 |
| 714 | Bot | 500 | J16+ ^ | 135 | 11615+ |
| 714 | Bot | 1000 | J12p | 2 | 11727-27+ |
| 714 | Bot | 1000 | J13p | 3 | 11619+-20 |
| 830 | Bot | 3000 | K16 Stdl | 208 | 11531-11600 |
| 287 | Sold | 1000 | J17c | 22-23 | 11531-31+ |
| 287 | Sold | 1000 | M20c | 16 | 11730-31 |
| 323 | Sold | 500 | M14p | 39 | ^M11601 |
| 355 | Sold | 1k | J-16+^/ K+ 13/19 Stgl | 49 | 11612+ |
| 355 | Sold | 1000/500 | K+19+c/M-19+c 2x1 | 1 | 11615+-16 |
| 370 | Sold | 3000 | M14p/19c Stgl | 60 | 11531-11600 |
| 370 | Sold | 1000 | K14p/19c Stgl | 33-34 | 11531-11600 |
| 560 | Sold | 2500 | K+18+/J-17+c Diag | Even | 11600+-01 |
| 660 | Sold | 1000 | M20+c | 12 | 11614+-15 |
| 660 | Sold | 600 | M16+p | 31 | ^M11600 |
| 660 | Sold | 1000 | M20+c | 13 | 11802-02+ |
| 684 | Sold | 900 | J14p/17+c Stgl | 30 | 11614-15 |
| 685 | Sold | 1000 | J17c | 24 | ^M11600+ |
| 685 | Sold | 1000 | J16+/17+/18c Tree | 10 | 11620-20+ |
| Local | Trade | 1500 | J12p | 1 | ^H11800 |
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