Wednesday, April 15, 2015

Unsupported Treasury Gains

Treasuries and Eurodollars are slightly higher as I write 6:15 CST, but I get the sense that by the time I am finished writing, these mkts will be steady or lower.  The eurodollar futures yield curve flattened throughout the first 3 years on modest voulme yesterday as open interest rose 100K, largely with 70K added to EDM5 and EDU5.  The Treasury 5-30 yield curve was steady at 120.5 bps.  Treasury open interest was mixed with a decent gain in US (+8K) and marginal movement elsewhere across the curve. 

Price action firmed early yesterday, but failed to hold gains late in the session as the long end in particular gave up considerable gains.  Five year, 10 yr, Bond and Ultra’s as well as back month Eurodollar formed bearish candlestick formations that signaled a potential end to the three session modest advance.

Otherwise, I still see longs as having achieved much of what they has set out to acomplish and those remaining long are increasingly of the type looking for a geopolitical event to spark a flight to quality bid.  In the absence of a ‘risk-off’ geopolitical or ‘automated trading’ event, concerns possibly heightened following Fed SOMA manager Potters remarks at a Primary Dealers Meeting earlier this week “Challenges Posed by the Evolution of the Treasury Market”, Treasuries and Eurodollars should trade lower with the repair of economic data following the Q1 moderation. 

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