bunker mentality, markets are virtually untradeable, and it’s only Monday….

We kick off today in the US dramatically higher but well off the early low yields in Treasuries after massive Fed intervention and intervention by several other central banks. Ironically, market expected a bit more coordination and trades slightly disappointed, but the rest is probably coming. Volume is simply awful, below that of an average night and not even on the radar for one of the most seminal nights in the history of the market. As of 8:45 AM ET, Treasuries are 14-20 bps lower, led by the belly which is being supported by the structure of the new Quantitative Easing announced by the Fed last night. Meanwhile, US equity index futures have been lock limit down since 45 minutes after the open, with no bounce as of yet; SPY looks to indicate an open down roughly 7.5% 45 minutes before the cash open.

Here are the bullet point headlines from last night:
*at 5 PM last night, FOMC announces that emergency meeting was held, in lieu of of Tuesday/Wednesday meeting which is now cancelled. Fed cut rates 100 bps to .25/00 bound for Fed Funds, took reserve requirement to zero. Just as important, Fed announced new QE, targeting $500BN in Treasuries and $200BN in MBS, beginning with today’s purchase of $40BN in Treasuries. Fed will alse encourage use of the discount window, as well as widening use of currency swap lines, this last line being crucial to long-term support for the globe.
*South Korea cut rates 50 bps to .75%.
*G-7 teleconference call and EU conference calls both scheduled for 10 AM ET.
*RBA will begin purchase program for Aussie bonds, broader QE via a long-term repo facility.
*RBNZ cut rates to 25 bps to 1%, promised to leave them at least at that level until next March, and reiterated that it will step up QE as preference over rate cuts.
*Japan increased purchases of ETFs, corporate bonds and commercial paper.

So there you go. Treasuries exploded to the upside on the 6 PM ET reopen, wings outperforming dramatically with 30y ripping higher, yields dropping a quick 28 bps from Friday’s 3 PM ET marks, while 2s jumped 24 bps before belly of the curve outperformed rest of the night after market started to focus on implications of Fed policy helping belly most. There was massive buying of Eurodollar EDH0, which was set to expire 14 hours after the Fed’s dramatic rate cut, with EDM0 being the second most actively traded instrument. There was Asian bank buying of US 5s and 7s, some efforts to receive in USD 5y swaps when spreads blew out (i.e., QE), central bank buying of 2s, along with hedge fund covering in US contracts and reds. Volume was actually best in futures from 6 PM ET until shortly after the Tokyo lunch; after that, it got incredibly quiet for the rest of the evening. Locally, JGB’s closed flat, Aussie 10s were 10 bps lower in yield, Kiwi 10s rallied 20 bps.

Europe opened to bunds trading sharply higher, as peripherals gapped wider in spite of all efforts to support them. Italy and Spain gapped 20 bps wider; our friends in Greece were out some 40 bps as everything repriced again. There was a block buyer of BTPs off the wides but Europe is waiting on central bank and G7 meeting for more clarity. UK is following the rest of the world, a bit more orderly but again devoid of any meaningful volume. There was a block seller of TY contracts at 5:27 AM ET ( 4669 TYM sold for 137-07+, $420K of DV01 in the 7y sector), most option activity on the exchange has been getting some gamma added on short tails, upper left outperforming for now.

There are no scheduled events or appearances that matter now. The situation will remain fluid to say the least. Gamma is actually “middled” at decent levels, in some 7- and 10-year tails, one could say that vols are marked cheaper but markets are so wide that you have to hunt to execute anywhere near those levels. The old adage applies: “don’t be a Rick for a tic” (just have to avoid compliance issues as well for me). So let’s try a shot here at the range for TYM today, with choice being to call the range at 139-00 to 137-08, after the range thus far has been 138-30+ to 136-20. Resistance comes in at 138-08+, 138-15, the 138-30+/139-00 objective, 139-18, 139-29…as for support, watch 137-16, 137-08+, 136-27+, the 136-20 objective, 136-00, 135-22, 135-07.

Enough for now….hope it helps and good luck to all,