US Govt 30y futures are trading in a tight range after last week big moves. At this point of time most of investor universe has assimilated some facts that have caused those spikes. These facts are, Weak 118 Billion treasury coupon securities auctions, unwinding of Swap spread positions, Pension fund buying activity and Corporate issuance glut. Don’t forget we have some market moving announcements within investment fraternity by Greenspan (canary on coal Mine), Bill Gross (Its good to move into stocks) and etc.
This week we have started with no big movements in the 30y yields. Economic news related to health of US economy remained stable to slightly positive. Market is waiting on the big news movers like Non-farm payrolls, ISM on first two days of April. Now a days economic indicators also started coming out neutral to slightly positive. This kind of scenario is making Equity markets to go bullish on positive news and stay muted to negative news. Bearish commentators are calling it top at every point market rising and feeling frustrated for not getting their call true. So where does this leave in terms of direction for treasuries. I think there will be a chance of yields moving higher is very plausible. But at this time it is very difficult to make this call because, technical analysis is suggesting the futures are heavily supported at 114. In addition, treasuries have been struggling to go beneath this low. Also even if it goes to this level such a move looks highly not sustaining. Another subtle fact that might come into play is new mortgage principal write downs by Banks will lead to spreads rising instead of falling. Another interesting thing will be treasury will be exiting from the MBS market.
My trade recommendation would be
1) Sell May 113 puts for a credit of $328 each
This trade has one major risk is market goes in a sell off
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