US TNote Future – March 2010

Nicole Elliott from Mizuho Corporate Bank at 12/15/09

Comment: The US yield curve is close to its steepest ever as banks scramble to re-pay TARP money ahead of the bonus season; meanwhile President Obama still does not ‘get it’, putting pressure on bankers to do their duty and lend to small businesses. Fixed income futures contracts have retreated a little further than we had allowed for, and yields backed up, prompting a few to claim to have seen a turn in the ultra-long term trend to lower yields. We disagree and see these claims as very premature. Though postponed by at least another week, we continue to watch for a drop in yields to 2.50% and the permanent establishment of lower yields, as has been the case with index-linked securities.

Strategy: Buy at 117.17; stop below 116.28. Add to longs on a daily close above 119.00 and again above 120.00 for 121.00/121.16, then 124.00.