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Bet The 10-Year Note Ahead Of FOMC Minutes

Published 10/08/2013, 01:39 PM
Updated 07/09/2023, 06:31 AM
In recent trade, the benchmark 10-year note is yielding 2.60-2.65% with yields moving inversely to price. We've seen an uptick in prices in the last three weeks and, therefore, yields have declined.

Shifting Focus
As the government shutdown enters its eighth day, the focus has shifted toward preventing a default of US debt with a deadline looming (10/17) just weeks out. Democrats and Republicans collectively need to figure it out. Recognize that the sides remain divided over an abundance of issues from health care to government spending. And while there may be no quick fix, my advice is to stop kicking the can and find a solution.

Price Action
Since the shutdown began, price has largely been sideways with investors reluctant to stick their necks out in either direction until there is more clarity -- economically and politically.

So let's make a low risk bet. While there have been few market-moving headlines, let's assume we have the potential for a market-moving event with Wednesday's release of the FOMC minutes. As of this post, the S&P 500 appears to be on the verge of breaking 1650 on the downside and penetrating a trend line that has held for the last four months. Volatility is low so we can purchase options for a deflated premium,
10 Year Treasury Futures
The Play
  • Short futures with a tight stop just above the recent highs. This represents just over $600 per futures contract.
  • Buy December 125 Ten-year note puts. For about the same premium just over $600 outlay you are buying a put with 46 days until expiration with a 32% delta.

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