Long Bond future trade

Rates Trade:  US long bond has been rallying since February from the low level of 114 to 128-04 as of Friday’s close. This rise has happened in an environment of debt crisis in Europe and Debt ceiling drama in USA.  An interesting thing has happened in last few months. In Europe Germany and France while drawing the rules for the Greece bailout Greece 2y yields have reached from lows of 13 to as high as 32.85 as Fridays close.  During the same time 30y yields started falling down despite debt ceiling drama. This suggests one important point that is crisis in US is not discounted by bond market investors. People have come to believe strongly that Cliffhangers at Washington have confirmed the outcome of clear cut deal but with lots of melodrama. This means, the movement in Treasury yields is clearly driven by fear of Greece. Now that Greece fears are waning down us treasuries will clearly start falling as the debt ceiling episode comes to an end with no big casualties. This can be monetized by a bear call spread on September long bond future.

Trade position: Sell 129 call @ 1.10 and buy 135 call @ 0.06. This position will be sized at 5 contracts with an initial intake of $ 5298. This trade will return the premium received as long as long bond is under 128 level. If it crosses above 129 it will start bleed away the premium.