Lind Plus Senior Market Strategist Jeff Friedman was quoted in the Dow Jones “Rate Futures Report” on May 21, 2009. Read Jeff’s thoughts on the market, along with those of MF Global Research Senior Equity Analyst and Vice President of Financial Research Nick Kalivas.

=DJ RATE FUTURES REPORT: ‘Let Me Out’ Sell-Off Hammers Rate Mkts

By Howard Packowitz
Of DOW JONES NEWSWIRES

CHICAGO (Dow Jones)–Fears that the U.S. is drowning in debt sparked an
across-the-curve sell-off of interest rate futures contracts Thursday.

Tumbling prices equated to expectations for sharply higher yields, as the
market geared up for the government’s sale next week of $101 billion in cash
Treasury securities.

Overburdened by supply, the market also grappled with the eroding value of the
dollar, concern that foreign investors will unload their U.S. assets, and
whether agencies like Standard & Poor’s will soon reduce the U.S. credit rating.

“Everyone is saying, ‘Let me out,’” said Jeff Friedman, senior market
strategist for the futures brokerage firm Lind-Waldock.

Another veteran strategist, Lou Brien of DRW Trading, told clients in an email
Thursday afternoon that “it is hard to recall many days when there was so much
selling interest in U.S. Treasurys, stocks and the dollar all on the same day.”

However, reduced market participation ahead of the long Memorial Day weekend
may have exaggerated some of the dramatic moves because with fewer traders, it’s
easier to “push around” the market, said Friedman.

Thursday’s action amounted to a concession to lure buyers to next week’s cash
Treasury sales, Friedman said. “They’re going to need more yield to entice
investors,” said Friedman. “I don’t know if we hit the level that’s attractive
yet.”

The June 10-year Treasury note futures price tumbled a little more than a
point on the day after falling to the lowest price in almost three months.
Thursday’s move lifted the 10-year cash yield equivalent above 3.25%, having
been as low as about 3.125% in early trading.

Like cash Treasurys, lower futures prices reflect higher anticipated rates.

The June 30-year Treasury bond futures price hit a two-week low, settling down
about two full points on the day. The 30-year cash yield equivalent had risen to
4.25% at Thursday’s settlement.

Also hammering the market was Standard & Poor’s warning about the British
government’s credit rating, due to the debt it’s accumulating to pay for various
credit and economic recovery packages.

“The talk of the town is that we’re next,” said Friedman, referring to the
possibility that credit agencies will consider downgrading the U.S. credit
rating as well.

Nick Kalivas, vice president of financial research at the brokerage firm MF
Global, argued that positioning for supply was a bigger factor in Thursday’s
sell-off. That’s because the British pound staged a partial rebound against the
dollar despite S&P’s warning. “I don’t think you would see the sterling trading
as well as it is,” said Kalivas.

However, some market watchers contended the dollar’s decline versus other
currencies was a catalyst for selling cash Treasury and rate futures contracts.

During the height of the credit crunch, foreign investors bought the dollar
and U.S. interest rate products as part of a safe-haven trade.

“The flight to safety is coming out,” said Friedman.

Now, the worry is that those same investors will sell their U.S. Treasurys and
convert to currencies other than the dollar, Friedman added.

Short-term Eurodollar futures prices dropped as well on Thursday, pressured by
the aggressive selling in other interest rate products.

Market participants said Thursday’s move did not necessarily reflect
expectations that the steady decline in a key interbank lending rate is nearing
an end. Credit conditions have improved to the point that the benchmark London
interbank offered rate has come down for 37 straight days.

The British Bankers Association reported the three-month dollar-denominated
Libor fell to 0.66125% on Thursday, from 0.71625% Wednesday. The yield peaked at
4.81875% on Oct. 10, 2008.

CONTRACT              SETTLE         CHANGE

Jun     Fed Funds    99.805        Unchanged
Jun     Eurodollars  99.35         Dn 4.5 basis points *
Sep     Eurodollars  99.295        Dn 6.5 basis points
Dec     Eurodollars  99.10         Dn 7 basis points
Jun  10-Year Notes   119-29+       Dn 1 1/32
Jun  30-Year Bonds   120-10+       Dn 2 4/32

* A basis point is equivalent to 1/100th of a percentage point.

-By Howard Packowitz, Dow Jones Newswires; 312-750-4132;
howard.packowitz@dowjones.com

(END) Dow Jones Newswires

05-21-09 1640ET

Copyright (c) 2009 Dow Jones & Company, Inc.