T-Notes' reaction to ADP report

The ADP Employment report showed 191,000 new jobs, the highest since November, against a consensus of 195,000 expected. The 10-year Treasury (CBOT:TYM14) traded 123-08 prior to the report, but tested support at the March 24 low of 123-02+ after.

A settle below 123-02+ could excite some long liquidation prior to the employment report on Friday. That level has marked lows on Jan 28-29 and since. A break lower for settlement should attract considerable attention. The post-FOMC meeting low tested support there and held. The price action since has been consolidating between 123-124.


Last week I noted a willingness to remain patient for the longer-term bearish trend to materialize. Last Thursday’s price action formed a bearish ‘hanging man’ and marked the top of the latest failed recovering price action. It has been 3 weeks since the FOMC meeting and the market may continue to consolidate prior to the employment report. It appears however by traded following the ADP report that traders were more concerned that the report would indicate employment weakness and argue against the general consensus that severe winter weather was the primary cause for weaker employment over last months. 

A more secure notion that severe winter weather was a governor on a still accelerating economic growth trend would have a strong influence on Treasury prices here. The 10-year Treasury Yields are now at 2.78%, and have little resistance above till 3%.

Although it may be a lower probably be a lower probability event, any strong move below 123-02+ today could indicate a major adjustment to the way traders are looking to be positioned for the employment report.

Conversely, a hold of long-held support could encourage strong buying. Some might consider buying a 123 straddle or a 122-124 strangle for protection against a volatility spike.

About the Author

Martin McGuire, managing director at TJM Institutional Services

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