Euro Bund/T-note Spread: A Short Sale Signal Was Triggered

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).

December Bund T-note spread daily

December Bund T-note spread daily

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.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s