With the expiration of equity index futures there was some expected expiration volatility in the equity markets. Stocks headed down in the US after expected profit taking after such a big run up, with financial shares getting battered from highs reached yesterday.
Bund made early attempts to breach 124.50 area and breached the level in the afternoon as stock started coming off and buying pressure remained from the fed injection on Wednesday.
Euribors were bid the whole day with Ecb members comments regarding rates. As the expectations for a rate cut continues, spreads along the curve were going higher. We reached 21s in the jun10-sep10 spread after retracing to 20s in early morning, the sep10 dec10 spread reached 25s after trading at 23s in the morning. This trend is likely to continue in the medium term as things continue to look bad in the economy as a whole.
Long term I still favour the downside for the bund unless we breach 125s, then I think we could return to the 126 area.
Have a nice weekend
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