Ares
14th May 2010, 04:42 PM
By Nic Lenoir of ICAP
We end the week with a quick update on the US Treasury Market. First directionally we are pleased to have identified early the bullish channel for the 10Y US Treasury future and the bund as it allowed us to stay clear from the selling frenzy following the announce of the European bailout last weekend. We still think bunds will get sold hard at some point but right now they are trading with a solid bid in this weak risk environment and so we will keep them on our radar happily seeing even better levels to sell. After all more balance sheet dilution will at some point backire for Germany, and if the Euro currency regime is dismantled no doubt that the proud Bundesbank won't be long to on the hiking bandwagon, so either outcome should be bearish for bunds. Not to mention that owning low yields in a plummeting currency is not exactly the most attractive proposition.
<img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/summers/Lenoir%205.14.jpg"/>
Either way leaving Bund in the back of our minds for now, we have upside targets for the US 10Y Treasury future around 121-02.5 which corresponds to the topside of the bullish channel and more importantly Elliott wave standard extension (as per the 10 minute chart we are at in wave iv of 3 of C, and that would be the bearish case, if it's a III of higher order then 121-02.5 will get bypassed). If we are correct then 119-07 should hold on the downside as key support. If that's not the case then we will revise our outlook based on the price action at the time, but for now we remain in a bullish dynamic.
Where things get very interesting is looking at 1Y1Y Forward in swaps. We see that we are just around the ultime low which is also a major support. Even though the market could possibly grind higher the risk reward of being long fixed income in that sector of the curve and at these levels is not great and the carry less positive. As a result, as long as Fixed Income remains bid we feel the curve will keep flattening. We see on the 2/10s chart that we rested the broken support at 270 now resistance and the curve has resume its flattening. With that in mind people interested in shorting Fixed Income should definitely sell red eurodollars, while we will keep for now our bullish outlook and a flattening bias. After all massively accomodative monetary policy and a risk averse maket environment should be prime to fester some bull flattening.
<img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/summers/1y1y%20fwd%20usd%20swap.gif"/>
<img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/summers/2-10%20us.gif"/>
Good luck trading and have a great weekend,
http://www.zerohedge.com/article/more-flattening-most-likely
We end the week with a quick update on the US Treasury Market. First directionally we are pleased to have identified early the bullish channel for the 10Y US Treasury future and the bund as it allowed us to stay clear from the selling frenzy following the announce of the European bailout last weekend. We still think bunds will get sold hard at some point but right now they are trading with a solid bid in this weak risk environment and so we will keep them on our radar happily seeing even better levels to sell. After all more balance sheet dilution will at some point backire for Germany, and if the Euro currency regime is dismantled no doubt that the proud Bundesbank won't be long to on the hiking bandwagon, so either outcome should be bearish for bunds. Not to mention that owning low yields in a plummeting currency is not exactly the most attractive proposition.
<img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/summers/Lenoir%205.14.jpg"/>
Either way leaving Bund in the back of our minds for now, we have upside targets for the US 10Y Treasury future around 121-02.5 which corresponds to the topside of the bullish channel and more importantly Elliott wave standard extension (as per the 10 minute chart we are at in wave iv of 3 of C, and that would be the bearish case, if it's a III of higher order then 121-02.5 will get bypassed). If we are correct then 119-07 should hold on the downside as key support. If that's not the case then we will revise our outlook based on the price action at the time, but for now we remain in a bullish dynamic.
Where things get very interesting is looking at 1Y1Y Forward in swaps. We see that we are just around the ultime low which is also a major support. Even though the market could possibly grind higher the risk reward of being long fixed income in that sector of the curve and at these levels is not great and the carry less positive. As a result, as long as Fixed Income remains bid we feel the curve will keep flattening. We see on the 2/10s chart that we rested the broken support at 270 now resistance and the curve has resume its flattening. With that in mind people interested in shorting Fixed Income should definitely sell red eurodollars, while we will keep for now our bullish outlook and a flattening bias. After all massively accomodative monetary policy and a risk averse maket environment should be prime to fester some bull flattening.
<img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/summers/1y1y%20fwd%20usd%20swap.gif"/>
<img src="http://www.zerohedge.com/sites/default/files/images/user5/imageroot/summers/2-10%20us.gif"/>
Good luck trading and have a great weekend,
http://www.zerohedge.com/article/more-flattening-most-likely