Trading futures contracts and commodity options involves substantial risk of loss, and thus is not appropriate for all investors. Investors should carefully consider the inherent risks of such an investment in light of their fi nancial condition. 1Page

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April 22, 2014

* Changing investment patterns in bond funds

* “Perfect Storm” in April - Safe haven combined with slowing fears

* April Non-Farm Payrolls - The fi rst 3-month string above +190,000 since the second quarter of 2013

* Lowest Initial Jobless Claims readings since May 2007

A combination of events has helped bring US Treasury prices back near their highest price levels of the past year. Clearly, a portion of the gains forged in Bonds and Notes were the result of the drag from the severe North American winter, but another portion of that price rise was attributable to concerns being thrown off by the events in the Ukraine and by a slight revival of dovish dialogue from key members of the US Fed.

However, we would suggest that nearby Bond prices ranging in a 140-00 to 152-00 range going into their 2012-2013 highs were made possible by historic fears of a debt crisis in the US, the prospect of a failure in the Euro, fears that the world was set to face an unending defl ationary period and most importantly, by promises from the US Fed of a nearly unending period of low interest rates. With both the US and Euro zone showing positive economic progress, the US defi cit thought to be on the decline again, infl ation starting to track back toward normal levels and the Fed briefl y hinting at the prospect of rising rates later this year, we think that Bonds and Notes are in the process of forging a very signifi cant, historical top.

Campaign Trade # 4Long-Term Top in Treasuries

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www.HightowerReport.comTrade Recommendations

Pre-open and Midday Audio UpdatesFundamental & Technial Chart LibraryDaily Fundametal & Technical Analysis

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Weekly Initial Jobless Claims

Most Recent: 304 (2) as of 04/12/2014 Source: US DOL

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US Non-Farm Payroll - Monthly Change Thousand Jobs

Other Months Mar-Apr-May

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Trading futures contracts and commodity options involves substantial risk of loss, and thus is not appropriate for all investors. Investors should carefully consider the inherent risks of such an investment in light of their fi nancial condition. 2Page

222 S. Riverside Plaza • Suite 900 • Chicago, Illinois • 60606 • 312-373-5000 • www.rjobrien.com

From a shorter-term perspective, we also think that events in the Ukraine and news that the most recent International Capital Flows release showed a surprise infl ux of foreign purchases of US Treasury Securities gave Bonds and Notes somewhat of a perfect bullish storm during the month of April. While the rebound from the extreme winter might not sustain the US recovery into the summer months, we point out that US Non-Farm Payrolls have shown a pattern of improvement in April, May and June in each of the last three years. We see a short-term top in Treasuries which could eventually become a major long-term top.

Anecdotally, we think managerial turmoil, poor performance and signifi cant outfl ows at one of the world’s largest bond funds over the last two years highlights the potential for an end of the long-term bull market in bonds. But in order to shift sentiment into the bear camp, it will probably require a distinct shift away from defl ationary conditions. For that to take place outside of the US, it will probably require several months of distinct forward progress in US economic numbers.

While US Initial Jobless Claims fell to their lowest level since May 2007 in early April, the trade might need to see a decline below 282,000. Th at would be the lowest reading seen since the beginning of 2006. In other words, the Treasury market needs to see blatant evidence of recovery to shift sentiment downward.

Given the pattern of declines in Initial Jobless Claims, the prospect of a strong Non-Farm Payroll seasonal period ahead and more normal weather, we want to get short Bonds for a long-term trade. Nearby bond pricing above 135-00 appears to be too cheap, but getting nearby bond prices below 131-00 probably requires steady month- over-month gains in US Non-farm payrolls. We also think that if the non-commercial and non-reportable net spec long in bonds rises above 40,000 contracts, it would shift the risk and reward signifi cantly in favor of the bear camp. However, seeing mixed US data into the middle of April suggests that the April Non-farm payroll results could result in a retest of the initial April highs up around 135-10. Long term position traders should consider using the last legs of the bull market to fi nance a longer term leveraged bear put play.

Technical Considerations

On the monthly charts Treasury bonds appear to be poised to complete the right shoulder of a massive asymmetrical head and shoulders top formation (perhaps into and off of the next payroll report). Cycle analysis suggests the next major weekly low is due the week of June 23rd, with the next high due the week of May 26th. Other technical signs of a top in the coming four weeks would be a s net pec long above 40,000 contracts, a decline in open interests below 680,771 contracts on a rally above 135-00 and/or another slow stochastics cross above the 75.00 level.

Long term Trade Suggestions:

1) BUY 2 Sept Bond 129 puts for 57 and then BUY 1 September Bond futures at the market. On a rally to 135-00 basis the September Bond futures, liquidate the long futures and hold the puts for a position play. Use an objective of 3-00 on the puts if you are able to exit the long futures at the 135-00 objective. Use a combined risk of $1,200 on the initial position, and consider purchasing an additional 129 put on a rally ahead of the April Non-Farm payroll release on May 2nd.

2) SELL a June Bond 135 put and BUY 4 July Bond 131 puts for a net cost of $1,800 or better. (Th e 135-00 puts were recently priced at 1-62). On a rally into new high ground, look to bank profi ts on the short June Bond 135-00 put around the 0-38 tick level. Use an objective on the combination of 130-00 basis the June Bond futures. Risk the position to a net loss of $1,100.

THE HIGHTOWER REPORT SPECIAL REPORT/CAMPAIGN TRADEApril 22, 2014

Futures Analysis & Forcasting

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Number Of Contracts

Trading futures contracts and commodity options involves substantial risk of loss, and thus is not appropriate for all investors. Investors should carefully consider the inherent risks of such an investment in light of their fi nancial condition. 3Page

222 S. Riverside Plaza • Suite 900 • Chicago, Illinois • 60606 • 312-373-5000 • www.rjobrien.com

THE HIGHTOWER REPORT SPECIAL REPORT/CAMPAIGN TRADEApril 22, 2014

Futures Analysis & Forcasting

Th e information in this report may be considered dated upon its release and should not be considered interpersonal advice. Th is report is merely an opinion on the market and is a refl ection of conditions as of its publication. Market conditions change! Traders should not consider entering positions without their own independent analysis of the market’s current situation, nor without further consideration of any changes to the information contained herein that may have occurred since this report was written. Th e authors are not responsible for any verbal or written claims and opinions that might be provided in conjunction with this report. Th e trad-ing suggestions contained herein have been provided merely as a general guide and only for the purpose of quantifying the authors’ opinions.

Th is report includes information from sources believed to be reliable but no independent verifi cation has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. Th is report should not be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. Th e risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their fi nancial condition. Any reproduction or retransmission of this report without the express written consent of Th e Hightower Report is strictly prohibited.

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