US TNote Future – March 2010

Nicole Elliott from Mizuho Corporate Bank at 02/09/10

Comment: The US yield curve is still terribly steep though five-year TNotes have outperformed as investors inch out along the yield curve looking for a bit more than the ‘zero interest rate’ policy (2.25% versus 0.80% two-year). Much higher than average futures volume Friday as we burst through the 118.00 area, one standard deviation from the mean since September, underlining the importance of the break and how many have been caught short. The contract is not overbought and momentum is decidedly bullish, which helps because there are a series of obstacles on the way up concentrated up through contract high at 120.15 to 122.00.

Strategy: Buy at 118.14/118.08; stop well below 118.00. Add to longs on a daily close above 119.00 for 120.00/120.15 where signs of instability might emerge. A weekly close above here is the minimum needed to signal a change in gear and another rush towards the all-time high at 130.25.