Friday, 28 February 2014

Stronger Euro CPI numbers puts a halt to the Bund

Yesterday we had quite a move up in the Bund, pushing well above 145.50 which is quite staggering! I personally kept going long 3 month spreads as they kept going lower, thinking the risk to reward on that front is very good. I ended up going long 4s and 3.5s in Mar15Jun15, 5 and 5.5 in Jun15Sep15, 7 and 7.5 in Sep15Dec15, and so on along the whole curve. This morning I was hoping for some kind of bounce, but it was the same low volume BS for the most part until Euro CPI number which came in 0.1% better then expected, which pushed the Bund 50 ticks lower and gave me my out on the Spreads. Like I mentioned in a previous post, I think it will probably go back down again, which is why I hastily got out, but those levels look golden now since the chance of negative rates is put on the back burner a bit with inflation creeping up. The number was quite surprising given lower inflation numbers out of Germany yesterday, which triggered the initial up move.

The Euro pushed up above 1.38 on the back of that number, which is now at multi month highs, and at the same time Bund Yields are at multi month lows, which goes to show the value of the US dollar right now!

Another thing to note was the push up in the Euro 15 minutes prior to the number. You can see the rise in volume as the Euro pushes up, and then you get the strong number...coincidence... I think not!

Looking forward its likely to be a choppy end to the day as this is the last day of the month, and next week we have the usual raft of data to keep us busy!

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