Thinking About Summer
The IMC blog is holding a short position in the March Bund/BOBL spread that was entered at the equivalent of 31.93 on October 10th. March contracts expire soon, so we’re going to roll to the June contracts.
The June spread closed at 28.94 on Friday, which is nearly a one and a quarter point discount to the March spread. This puts the new spread right at a support zone on the weekly nearest-futures chart between the December and January lows of 28.91 and 29.09, respectively. Once this support level is broken, there is nothing to stop the Bund/BOBL spread from descending to the next technical support level at a weekly Fibonacci .618 retracement at 26.13 (as measured between the 2015 low and the 2016 high.
If the spread does not end its decline somewhere around this important support level, it may try to replicate the 9.40-point decline from last year’s record high. If so, the next downside target will be at 24.74.
Exit the hypothetical short March Bund/BOBL spread and simultaneously enter a short June Bund/BOBL spread at the market-on-close on Monday, March 6th.