Treasury Trading Update.

Good buying at yesterday’s auction of 7yr. notes saw prices rally about ¼ point heading into the 12:00 noon c.s.t. bid dead line. Those gains are currently being held with 10’s just a couple ticks below settlement trading 11712.5 currently. Volatility was lower for most fixed income futures with the June options around 5.5% down from 6% the previous day. Prior to the open a dealer liquidated as much

as 10K of the June 115.5 puts and later in the open outcry sold around 15K of the June 115 puts. They had just bought these options a few days earlier. Over all futures volume was just under a millions contracts, open interest resumed it’s trend of decent gains rising over 40K to a new high for this year at 1,700,000 approx.

Oil prices were fairly strong yesterday along with grains and precious metals. A number of analysts have turned quite bullish on gold and the charts show it poised to rally to November highs above $1,200 per ounce. The CRB index rallied back to the middle of it’s recent range. A move to 280 will be noticed and fixed income yields typically respond in suit.

 As the ratings companies try to keep up with the cds buyers, one country after another is seeing their cost of credit rising, Greece, Spain, and other “club med.” countries have seen this happen. There were reports this morning that after the UK elections which look to be a damp squib, rating agencies will be inclined to lower the debt rating there as a lack of fiscal austerity will leave them with little choice. The US is going to have its turn at some point as many of our states are technically insolvent already. But for now Bunds and treasuries continue to see buying, as they retain the perception of safety, and more importantly to reality of liquidity.

I still believe: unfortunately, that the most painless way (and I know it’s absolutely wrong) the world will deal with this fiscal crisis is to print it’s way out. If you add in a little economic growth which we are seeing, along with commodity price inflation a move higher in rates will remain the long term trend. Most charts seem to be indicating topping patterns, daily views and weekly. I think this will happen and rates will rise longer term. But quick panic rallies are almost a daily event and will likely continue through the May 6 and May 9 elections in much of Europe and the UK. Stay tuned.

GDP expected to be a bit softer but could see some strength from the auto sector, in my opinion. Also the deflater is expected to show an increase of 1% up from .5 in the 4^th quarter of 09.