Bond rally nearing an end?

In the last week, we've had a weak NFP report, the Fed stopped (or pause), a foiled terrorist attack, and a anemic stock market, yet interest rates (both long and short) moved higher.

Does this mark the end of the summer bond rally?
 
Finally back from a two-week long vacation in the Northwoods of Wisconsin. Even the people up there are talking about high interest rates and oil prices. Anyway, I know the Greenwich Capital Markets guys always speak of positive seasonals for the whole bond complex every time we come out of a refunding, so watch out for that. Personally, I think the Fed may go again at the next meeting. The market got their weak reports as expected with NFP slowing the last 3 months or so and the weaker (but still positive right?) growth out of GDP. PCE is still running hot and we await CPI and PPI this upcoming week. As for options plays at the CBOT while I was gone Wells Fargo was getting long about 75,000 Dec 108 calls in the 10yr along with another 90,000 Dec 110 calls (not sure on the 110's though). The other mortgage house, Countrywide, rolled 35,000 of their Oct 107 calls into the Nov 107 calls in the 10yr late last week. Also, someone snatched up about 35,000 Dec 103 puts in the 10yr late last week, which didn't budge the open interest in that strike. All in all, PIMCO was right on their Sep 103-108 strangle in the 10yr as always, 150,000 of them, expiring worthless soon, and they have begun to sell Dec 104 puts in the 30yr options, maybe 30,000 so far, should sell Dec calls at some point too.
 
Quote from mcurto:

Finally back from a two-week long vacation in the Northwoods of Wisconsin. Even the people up there are talking about high interest rates and oil prices. Anyway, I know the Greenwich Capital Markets guys always speak of positive seasonals for the whole bond complex every time we come out of a refunding, so watch out for that. Personally, I think the Fed may go again at the next meeting. The market got their weak reports as expected with NFP slowing the last 3 months or so and the weaker (but still positive right?) growth out of GDP. PCE is still running hot and we await CPI and PPI this upcoming week. As for options plays at the CBOT while I was gone Wells Fargo was getting long about 75,000 Dec 108 calls in the 10yr along with another 90,000 Dec 110 calls (not sure on the 110's though). The other mortgage house, Countrywide, rolled 35,000 of their Oct 107 calls into the Nov 107 calls in the 10yr late last week. Also, someone snatched up about 35,000 Dec 103 puts in the 10yr late last week, which didn't budge the open interest in that strike. All in all, PIMCO was right on their Sep 103-108 strangle in the 10yr as always, 150,000 of them, expiring worthless soon, and they have begun to sell Dec 104 puts in the 30yr options, maybe 30,000 so far, should sell Dec calls at some point too.
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Ya, those greenwich commentaries are pretty optimistic huh? Should be an interesting couple weeks as we head into the fall session, I like how all the talk is about the pause and the varying opinions even a few days after the announcement, means potentially more volatility...

Hope the vacation was nice...
 
Nothing of note going on today until about 1:30pm. Then the big boys came out to play. A part of the Goldman prop group has been short front month straddles in TY for the past month or so, mostly Sep 106 straddles, about 20,000 or so. They bought back 10,000 of them today while selling 10,000 Oct 106 straddles. Long story short, they are deciding to roll their short front month vol position before expiration (while still remaining long about the same in the Dec 106 straddle). Also remember awhile back everyone thought that Vega fund was INSANE for selling 20,000 Sep 106 straddles at 62 ticks in TY. Now the thing is trading around 38 ticks. Gotta take big risk to make the big bucks I guess.
 
Now the Fed instantly looks like a genius with a very soft PPI and somewhat tame CPI today. They aren't out of the woods yet, probably not on table for Sep, but maybe Oct. Goldman prop desk continued to sell 10yr volatility today and even ventured out the curve to the 30yr. They sold 10,000 Dec 107 straddles in TY at 1-48 and sold 5,000 Oct 110 straddles in US at 1-49 and 1-48. Unbelievable. They sell vol no matter what. Most likely think they are long swap volatility (as swaps have narrowed 2 full basis points to cash 10s this week and it coincidentally happens that they sell size whenever swaps move). Any cash or swap guys care to comment?
 
Interesting article in Tues. WSJ credit column said the GSEs have recently been getting lots of requests from funds to sell callable debt as the prospect of a Fed pause increases. People are getting more comfortable with these levels holding for a while.

mcurto – Are you seeing any activity in steepeners? The NOB option trade would seem to be a good strategy if mortgage guys are hedging prepayments.
 
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