Treasury Futures Day Trading

Bond Futures or Treasury Futures as their called, are the best contracts you can trade. Anybody that considers themselves a day trader should be trading this market. I would venture to say that with these four contracts, the 30,10,5, and 2 year notes, you have several advantages that you wouldn't have if you were just trading equities. What If I were to tell you that there are four stocks you should trade, A,B,C and D. And that if stock A went up, the next day B would go up and the next day C would follow, and so on. Sounds like a good program right? Your first reaction would not even to trade Stock A, but rather just to use it as an indicator for what the rest of the stocks are going to do. So when Stock A went up you would be ready to buy Stock B the next day. Well what if you were a day trader and these occurrences happened daily? So forget the analogy with the stocks, this is how the treasury futures market moves, and it is exactly how we trade them.

If you like stock or futures trading you will like this technique! As you notice with the charts below, the thirty year T-bond has just began to swing to the upside. In the charts below, the bonds, the notes were following, have yet to duplicate the direction of the bond creating an opportunity to the upside for the notes.

Trading Bond Futures

Increasing liquidity has been flowing into etf's that short treasuries lately. It's important to note the difference between treasury futures and the regular treasuries. Several managed futures firms buy and sell futures contracts reflecting the future cash price of the bond itself. 5 year 10 and 30 year notes are among the most popular and provide the an advantages trading program. The thirty year bond is the most reactive to fundemental news in the market. The ten year note wil then follow the 30 year bond and the 5 year will follow the ten. This presents not only an easy program for trading treasuries but also an opportunity to hedge your initial positions off each other in the market.

If you dont have a commodity broker or futures broker you will have to open an account with one in order to trade any futures contract. All seriese three licensed brokers are regelated by the NSAD, NFA & CFTC.

After more than a decade, the government bond market may see benchmark yields climbing to 10 percent levels. This implies higher interest costs for the government, which is yet to finish 50 percent of its annual borrowing.

Further, it could force corporates to offer Treasury Futures on their bond issues at a time when borrowing from banks would turn costlier. Corporates may prefer to float one-two year bonds, hoping that rates may soften later.

Senior treasury officials said that the benchmark yield touching the 10 percent-mark holds strong implications across all financial markets. On Tuesday, the rupee fell against the US dollar, following RBI's decision to stop selling dollars to oil companies.

The move is likely to spur dollar demand in the forex market. Treasury Futures ended at 42.64/65 against the dollar compared with the previous close at 42.55/56 levels.

Meanwhile, bond yields shot up to a high of 9.54 percent after the policy was announced. Yield on the 10-year benchmark bond, the 8.24 percent bond maturing in 2018, ended the day at 9.40 percent, rising from its previous close of 9.07 percent.

Of the total borrowing programme worth Rs 1,45,000 crore, the government has, so far, borrowed funds close to worth Rs 70,000 crore.

CITING unreasonably high rates, the government rejected all bids for short-term debt papers it had planned to sell on Monday.

Had the government accepted banks' bids, the benchmark 91-day Treasury bill rate, which banks use in pricing their loans, would have risen to 5.895 percent from 5.699 percent during the last unsuccessful auction of the three-month IOU

The government was set to sell P3 billion of the 91-day T-bills but banks were willing to buy more, or up to P5.970 billion.

"Their bids were unacceptable for us says a commodity broker. It [is] not in line with secondary market [rates]. I think they already factored in future response of the central bank because of higher inflation," National Treasurer Roberto Tan told reporters aafter the auction.

The one-year T-bill rate slipped to 6.923 percent from 6.985 percent in the previous auction. The government awarded in full the P3 billion worth of 364-day IOUs on sale.

"They are looking at the one-year as oversupply already because of the retail treasury bonds [RTBs]," Tan said, referring to the government's sale last month of the debt papers meant for sale to retail investors.

The government earlier closed the offering of RTBs, six days ahead of schedule after it already raised P70 billion from the sale of the three- and five-year fixed-rate IOUs.

The coupon rates for the three- and five-year IOUs were set at 8.5 percent and 9 percent, respectively.

In line with the new RTB offering, the government decided to scrap two remaining T-bond auctions this month, with a combined issue size of P14 billion.

Given the surge in demand for the retail bonds, Tan a futures broker said the government is in a good cash position, allowing it to reject high bids during its regular T-bill auctions.

He said the government can already cover a plan to spend up to P75 billion on top of the P1.24-trillion annual budget for subsidies and other expenditures aimed at cushioning the impact of high inflation and a slowing economy.

The Department of Finance earlier said it may forego a fresh round of commercial borrowing abroad, citing the weak pace of government spending.

Treasury Update

Treasury two-year notes fell by the most in two weeks as a tumble in commodities boosted stocks and sapped demand for the relative safety of government debt.
Ten-year notes yielded the least relative to two-year securities in four days. The narrowing of the yield gap indicates investors are favoring longer-dated debt, which is more sensitive to inflation. Traders' expectations for inflation over the next decade fell to the least in almost five years as oil dropped to the lowest since May, yields on Treasuries whose payments are tied to the consumer price index showed.

Stock strength is definitely causing the short-end weakness,'' said Salvatori Anello, director of Treasury futures in New York at Barclays Capital Inc., one of 19 primary dealers that trade government securities with the Federal Reserve. ``Decreasing inflation concerns are helping keep the longer end bid.''

The yield on the two-year note climbed 7 basis points, or 0.07 percentage point, the most since July 25, to 2.5 percent as of 4:34 p.m. in New York, according to BGCantor Market Data. On the week, the yield was little changed. The 2.75 percent security due in July 2010 fell 1/8, or $1.25 per $1,000 face amount, to 100 15/32.

Futures Broker Jason Blaylock indicates "a Fed Cut in the near future could throw the market in a backword spiral"

Oil?

According to senior analyist & commodity broker Jason Blaylock, there shouldn't be too much excitement in this drop in oil since 80 percent of the positions held at these levels are commodity index funds instructing their futures broker

to sell. "Nobody wants to get caught in institutions bulk selling through their over the counter cash swaps, that's exactly what this is!"

SHORT

A quick snap to the downside should prove a great short position for the 10,5 & 2year Notes. Keep your eye on the thirty year and follow the leader!

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