24th November Bond Futures overview
24th November 2009
Bond Futures
Overview
Over the last five days the Bund has ground higher reaching November highs at 122.70. The US Ten Year has for the first time in the last couple of months underperformed in comparison merely holding onto gains achieved in previous weeks. Last week we had the release of US CPI and PPI data both of these were broadly in line and failed to shock the fixed income markets.
Thoughts from the trading floor
From a technical perspective the Bund continues to appear bullish and recently we have seen a small daily uptrend develop. The big challenge will come when the previous double top is met at 123.06-12, a break of here will signal the Bunds want to test higher ground with the next significant challenge lying at 124.67. The US Ten Year has outperformed the Bund in recent weeks and in doing so has reached the resistance provided by its daily double top formation. Over the last five days we have seen the 10 Year battle to gain ground above this resistance at 119.290 and whilst this level has been breached the market is yet to achieve a close above it. If a break of this level is achieved the next test for the bulls will be seen at 120.165.
Tonight will see the release of the FOMC minutes, which will likely provide details of clashes between hawks and doves in the last meeting. The statement released earlier this month showed no major changes, with the Fed reiterating its commitment to keeping rates at “exceptionally low levels for an extended period”. The most likely clashes highlighted by tonight’s minutes will be related to inflation expectations. The run up in commodity prices over the last few months may well get a mention.
This Thursday we will see the Americans absent from the markets as a result of their Thanksgiving holiday. Due to this all the data to be released this week has been squashed into Monday-Wednesday. This includes US GDP released this afternoon which has attracted significant attention as despite the last number beating estimates many analysts including Goldman Sachs have downgraded their projections. We will also see large 5 Yr and 7 Yr auctions totalling $74 billion. The 2 Yr auctioned last night received satisfactory demand so the market will be prepared for good results.
Bull View
Bulls will feel comfortable with the recent progress and will be keen to see both the Bund and US Ten Year break the previous daily double top. A break of 119.280 in the US Ten Year may provide the Bund with momentum to break its daily resistance at 123.12.
Bear View
Bears will be hoping the daily double top formations hold and may well be looking to the data released over the next few days to support their position.
Futex View
We believe that the US Ten Year will break the resistance provided by the previous double top formation and in doing so will persuade the Bund to challenge its equivalent level.
