US TNote Future – Dec 2009

Nicole Elliott from Mizuho Corporate Bank at 11/17/09

Comment: At last the penny seems to be dropping for some investors: as yields on short-dated Treasuries approach zero, one is forced out along the curve. With 12-month TBills yielding 0.28%, 2-year TNotes 0.77%, and the Fed Funds target likely to stay where it is for a very long time, suddenly 10-year TNotes at 3.35% look attractive (to bankers and the Chinese if no one else). Technically the rising Ichimoku ‘cloud’ has allowed a re-test of contract high, just ahead of a cluster of pivotal resistance levels between 120.16 and 121.16 (benchmark yield 3.285%). Yesterday’s close above 119.00 should increase bullish pressure and expect a bit of a scramble as we switch into the March 2010 contract.

Strategy: Buy at 119.15; stop below 118.00. Add to longs on a daily close above 119.29 for 120.20 short term, then 121.00/121.16 and eventually for even higher prices and lower yields through to year-end.