The Euro Bund/T-note Spread
Yesterday the December Euro bund/T-note spread closed below the August 5th low and triggered a short sale signal. The blog entered a hypothetical short position when it sold one December Euro bund contract at 155.99 and simultaneously bought one December T-note contract at 128-20. This puts the spread on at a price of 27.36 (premium bunds). Initially, the spread will be liquidated on a two-consecutive day close above 28.57 (10 ticks above last month’s peak).
Technically, this was an ideal place for the spread to roll over. The rally took it to the Fibonacci .618 resistance line and just above the 100-day Moving Average. Yesterday’s carnage in the global stock market tripped the wire for the trend change. Interestingly, today’s rebound (so far) in stocks did not cause a rebound in the Euro bund/T-note spread. Instead, it broke even lower as the bunds are dropping faster than US Treasuries. This is certainly a good way to start the trade.
Once the December Euro bund/T-note spread breaks below the June multi-month low of 24.97, it should confirm that a second leg down is underway. This should give us a big enough open profit on the short position to start looking for an ‘add-on’ setup. We’ll keep you posted.