Euribor – December 2009

Nicole Elliott from Mizuho Corporate Bank at 10/12/09

Comment: The German Treasury yield curve has flattened (30/2 year by a not inconsiderable 50 basis points) as yields at the long end drop; this has come as a surprise to many and is making equity bulls nervous. Three-month Libor at 70 basis points today and becoming more costly to produce through the forwards, while futures contracts look top-heavy, stalling at the top of ‘wedges’ at record highs. Good volume on yesterday’s slip suggests we are due another of our periodical clear-outs. Allow for drops between 7 and 25 basis points depending on the contract month. These are seen as medium term buying opportunities for another painful crawl higher later this year.

Strategy: Possibly attempt tiny shorts at 99.200; stop above 99.275. Cover ahead of 99.045/99.000 and look for signs of a ‘spike low’ to go long.