Comment: US Treasuries led the sudden back-up in yields last week, steepening the curve and rattling recent converts. While we cannot rule out a break to new contract highs for this Bund future later this year, caused by the rush out of peripheral Eurozone sovereign paper into core Europe, we feel that over the next month or two we shall be establishing a new trading band rather than rally steadily. Bullish momentum has collapsed but then the contract is no longer very overbought. We remind that a ten basis point move in the cheapest to deliver is equivalent to one big figure on this contract. Caveat emptor.
Strategy: Possibly attempt small longs at 130.75 but only if prepared to add to 129.00; stop below 128.00. First target 132.00, maybe contract high at 133.29.
