BOND FUTURES

August 14, 2013

U.S 10yr:

TECHNICAL

Our model made an excellent call yesterday and continues to point towards a short though we are still technically in the range. The move may be limited as our model does not indicate we have started a new trend.

FUNDAMENTAL:

With Fed Taper Talk rustling around and equity markets trading mixed as a result it proves the market is back on Taper fear. With likely good E-zone GDP prints today Risk On sentiment will likely prevail and Fixed Income will move lower

SUMMARY:

Tech & Fundmntl suggest Fixed Income will underperform today. CAUTION everyone and their grandmother expect E-zone GDP to be a beat which can mean watch out for a miss and start preparing your hedge trade.

Macro Theme:

Clearly the market will lean towards being SHORT the 10's knowing that the BIG TAPER is just months away. Remember the TAPER is new just as TARP was 5 years ago. Bonds caught a bid and stayed bid and since the Taper talk bonds have been largely offered and stayed that way and likely will. FED Talk is of course down playing the impact but for now the Macro Trend is clear - SHORT BIAS

Bunds:

TECHNICAL:
Bunds acted as expected yesterday and should see more downward pressure though our model suggests that it may see some limited down side beyond 140. should we get there

FUNDAMENTAL:

Taper Talk never helps fixed income and with GDP expected to be a beat and Bund supply on tap Bunds will trade some decent volatility but should end the day lower

SUMMARY:

Tech & Fundmntl suggest Fixed Income will underperform today. As noted above, CAUTION on the GDP expectations as too many are factoring in a decent print so make sure you have a hedge trade in place.

Macro Theme:

The ECB is out of tools. Their situation is precarious as recent data has bottomed out but not strong enough to turn the European recession around which means all they can do IS TALK DOWN RATES but TAKE NO ACTION!