Wednesday, February 22, 2017
Bund futures reached above the high-water mark since early-Novembers surprise US Presidential election which brought extraordinary volatility, but only temporally lower yields. A two session settle above a post-election high (165.26) may target 166.68 and open door for test of late-Sep high 168.93.
Stateside, the bullish price action in Bunds will lend support in Treasuries as the spread 10’s-Bunds pushes back above 215 bps.
UST’s are of course well below the November 9th high as traders have marked up expectations for economic growth, inflation and risk premium. Only last week, Fed Funds futures marked up the prospects for a Fed policy rate move as early as March to 40%.
Ten year treasury futures are slightly higher this morning (+0-06) on modest volume. TYH7 is about a half point below the (125-18) Feb 8th high, which itself was the high since November 17th. A break above 125-18 or a settle above 125-11 would place MANY shorts in danger of being in the red for the first time in months.
In short, there is CONSIDERABLE risk for a short covering rally. The Fed Minutes from the February FOMC meeting are released today and lacking hawkish rhetoric, Treasury shorts may decide that the sideline is a better place to be for the time being.