Euro−Bund future – Dec 2009

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

Comment: Yield curve flattening last week with Bobls being hit more than other maturities as yields back up. Increasingly important resistance at 123.00 in the Bund future, and the psychological 3.00% benchmark yield level, suggest prices will hold below here this week and possibly next one too. The contract is no longer overbought though bullish momentum is low. Expect it to form an interim base, probably around 121.50/121.00. This is seen as a buying opportunity for an eventual move higher so that yields could drop to 2.50% and maybe 2.25%.

Strategy: Buy at 121.85; stop well below 121.00. Add to longs on a daily close above 123.00 for 124.00/124.60 and probably a lot more before year-end.