Bund/BOBL spread: Trade in September

Getting More Time

We’re about at the halfway mark for the month, so traders will soon start rolling out of their June Treasury contracts and into the September deliveries.  Since we have not yet been elected on our contingency to short the June Bund/BOBL spread, we’ll go ahead and switch to working orders for the September spread. That way, we won’t have to worry about rolling the position until the end of summer.

You may recall that our parameter for getting short was to wait for a break below price support at the similar lows of mid-February and mid-March at 30.63 and 30.61, respectively.  This was confluent with the weekly 2015 high of 30.58.

Well, the spread got awfully close to that point in late April and then took off again.  This confirms that it is an important price level to monitor.

The September Bund/BOBL spread is trading at a discount of nearly two full points to the June spread, so it is a lot closer to the weekly 2015 high than the June spread is.  When it becomes the nearest-futures spread in a few weeks, the pressure will get turned up.  Either the September spread needs to take the baton from the bull market and run higher or else it could indicate that the run is over.

September Euro Bund Euro BOBL spread daily

September Euro Bund Euro BOBL spread daily

The March low of 28.66 and slightly higher April low of 28.81 set key support on the daily timeframe for the September Bund/BOBL spread.  Therefore, we will use a break of this level as a sell signal.

A test or breakout above the current contract high –especially after the September contracts become the front month contracts– could provide us with a setup to get short at higher prices.  A Wash & Rinse sell pattern would certainly be nice.  If so, we will definitely be posting something.  Until then, Schönes Wochenende!

Trade Strategy:

Cancel the hypothetical order to short the June Bund/BOBL spread.  Replace it with a hypothetical order to sell one September Euro bund contract and simultaneously buy one September Euro BOBL contract if the spread closes below 28.66.  Initially, the spread will be liquidated on a two-consecutive day close 10 ticks above the contract high that precedes the entry (currently at 31.26). 

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