Learn to Trade – Bond Futures 17th August
Overview
Over the last five days Bunds have performed very strongly pushing on to set new all time highs yesterday at 132.30. The “QE lite” programme announced last week by the Fed provided all government bond market with a boost especially the US Ten Year which also continues to perform well.
Thoughts from the trading floor
From a technical perspective the Bund performed well last week breaking crucial daily resistance at 130.37. Future levels are simply extrapolated from historical data, to the upside resistance lies at 132.65 and beyond that at 133.75. The US Ten Year is currently trading just short of key resistance at 127.015 if this can be breached we may well see the market move rapidly higher to test the next large level at 128.010.
Last week the Fed moved to reinvest maturing MBS debt in treasuries, in doing so they insured their balance sheet would not contract. This move has been dubbed “QE lite” by the media and it certainly confirms how concerned the Fed are by the prospect of poor future growth. Both the Bund and the US Ten Year posted significant gains on the announcement and have continued to rally since. Lots of market participants now believe the Feds main remaining tool will be altering the size of their balance sheet, a policy which leaves the door open for more QE should we see softening in the US economy. This considered the likelihood of a further US Ten Year rally seems strong.
Today the US releases their latest PPI figures but for now we believe all inflation indicators will take a back seat toother macro fundamental indicators. This situation will likely exist until we see signs of recovery again and inflation returning, until then deflation remains the main concern support Bond bulls.
Important events this week.
- Tuesday: PPI, Housing Starts US
- Wednesday: BOE Minutes
- Thursday: Initial Jobless Claims, Phili Fed (US)
Bull View
Bulls will have been encouraged by the Feds latest move to purchase more treasuries and for now will be targeting the 2% yield in the Bund.
Bear View
Bears are still very much on the back foot and looking at damage limitation, whilst fundamental data releases continue to undershoot they may struggle to make much progress.
Futex View
We continue to remain bullish until a point when fundamental data begins to improve . This considered we will continue to buy pull-backs.
Tags: bear, BOE Minutes, bull, Bunds, Feds, futex, Future levels, futures, MBS, ppi, QE lite, US Ten Year
