Interest Rates

May 4, 2009 - On April 15th traders covered at 123-38/64 the Jun'09 T-note sold short at 125-20/64 on March 18th. The profit was 1-46/64.

I would like to get short again. The contract has moved lower since we were stopped out, but is I think due for a bounce. The yield on the T-note ended Friday at 3.15%, which is at the upper end of resistance. So some pullback in yield (i.e., a bounce in prices) can be expected. I therefore recommend selling short the Jun'09 T-note contract on the first close above 123-00. Stop-out this trade if this contract subsequently closes more than 1-00 point above your selling price.

I have been noting in recent letters that the odds have been improving that December's top in the price of long-term US government debt instruments is their final peak. With each passing day, that top looks more and more certain.

Buyers of long-term government paper are focusing on the coming reflation, which is poised to be a tidal wave, given the policies of the Federal Reserve to rapidly increase the quantity of dollars it is creating. Higher long-term interest rates will of course further deepen this country's economic woes.

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