US Treasury concluded financing with decent 7-yr Note

Rates

ECB rumours push Bund higher

German bonds had a strong run, triggered by ECB rumours about measures under consideration for decision at the December ECB meeting. Mixed US eco data had no lasting effect. German Bunds outperformed US Treasuries. In a daily perspective, the German yield curve shifted 1.6 bps (30-yr) to 5.2 bps (5-yr) lower. New lows for the 2s and 5s, with the 10-yr yield again below 0.5%. Changes on the US curve ranged between +0.4 bps (2-yr) and -0.8 bps (30-yr). On intra-EMU bond markets, 10-yr yield spreads narrowed by 3 to 7 bps.

Intraday, the Bund caught a bid when rumours filtered through about potential ECB easing measures at the December 3 meeting. The Bund rally went hand in hand with the equity rally and the euro sell-off. The Bund rally topped out around noon. US Treasuries traded with an upward bias too, but the gains were small. During the US session, the US eco data were mixed. US Treasuries spiked lower, but soon returned towards opening levels in the absence of follow-through selling. The Bund continued to hover sideways, but remains within striking distance of the recent (Oct) high.

Thin Calendar, slow trading?

Today, the eco-calendar is very thin as the American markets are closed for the Thanksgiving holiday. The only releases with some market moving potential are the M3 money supply for the eurozone and the Gfk consumer confidence indicator for Germany. The M3 money supply is expected to have remained stable at 4.9% in October. We side with the market consensus. The German Gfk consumer confidence is expected to have slightly declined from 9.4 to 9.2. We see no specific risks and side with the consensus.

US Treasury concluded financing with decent 7-yr Note

The US Treasury concluded its end of month financing operation with a decent $29B 7-yr Note auction. The bid cover was a little above average (2.51 vs. 2.46) and the stop-out rate was well through the 11:30 am bid side. Buy-side takedown figures were also strong with good direct and indirect bids.

Today: Thanksgiving-thinned, technical trading

Overnight, most Asian stock markets trade positive with China underperforming. US Markets are closed today for Thanksgiving holiday. We expect a neutral opening of the Bund.

Today, the eco calendar contains only EMU M3 and lending data. While interesting, these normally don’t impact trading. In the absence of US investors and amid this thin calendar, we expect today’s trading to be technically in nature. End of month extension buying is a positive, but we don’t expect the Bund to break above the October high (158.60) without strong driver. A lot of ECB easing expectations are also discounted by now.

Technically, the fundamentals (ECB) and technicals (uptrend channel) remain bullish for the Bund. We stay cautious though and still consider some lightening of long positions especially if we would test the highs (Bund). We see, as before, little value when German 10-yr yield is below 0.50%. The T-Note future tested key 126-16 support, but no sustained break occurred. The bears probably won’t go immediately for another test. Therefore, we hold our sell-on-upticks for US Treasuries or even lightening long positions straight away.

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