Comment: Over the last ten days the US yield curve has flattened a little, admittedly from its steepest ever, five-year TNotes leading yields lower. Are they getting the message at last? Fed governors have again been at pains stressing that interest rates will remain low for a very long time while telling us they are focusing on ‘exit strategies’. We shall assume they are first concentrating on getting back, bit by bit, all the money they have pumped into the banking system. Eurodollar futures will continue to inch up towards Libor as economic recovery hopes fade. Almost record volume in this Dec10 contract last week and rising open interest across the board suggests many still have a lot more repositioning to do. Calendar spreads should narrow as red months probably have greater upside potential.
Strategy: Attempt small longs at 99.170; stop below 99.060. Next target 99.285, then 99.415.
