Lower Bonds higher Stocks on the back of QE3

So much for thought we wouldn't go below 139 in the Bund, but despite widespread anticipation of this move from the FED we reacted with a big sell of in the Bunds, which goes against what you would fundamentally expect, and we are trading multi month highs in all currencies against the dollar. The EurUsd is trading above 1.31, given that 9 days ago we were 1.25 which is a huge move!
Spreads are inching up as you would expect too, but not getting affected as much as the longer end of the Yield Curve.
So here is the facts, Nasdaq at decade highs, European Indices at year highs, Dow at 4 year highs, yet the economy is massively weak, this move by the FED was on the back of a very weak employment picture, and with the 3rd round of QE in the works, one has to be aware of the potential inflation risk down the line.
You can say that stocks are the only investment with yield given the low rate policies from the central banks, but do i think this is all massively overcooked! The answer is yes, and so I am expecting some correction going forward, although I dont think this will happen till next week as I cant see people wanting to be short over the weekend. Either way, its all exciting stuff! Have a good weekend

German Court ratify ESM Plan

The German Constitutional Court has ratified the eurozone bailout package. The bill will now be signed into law.
At issue was the legal matter of whether the permanent bailout fund which the eurozone nations had established (the European Stability Mechanism) was in keeping with the German constitution.
The ESM is a scheme which allows joint funds to be spent buying debt directly from governments. These governments would request help after finding it too expensive to borrow from the market. Unlike the OMT, its potential size is limited to €700bn. Germany will take on 27.15pc of these contributions, giving it a maximum liability of €190bn. Of this sum, €80bn (or €21.72bn for Germany) must be paid up front to the ECB.

We had quite a wild move on the back of this as the Bund initially went bid before selling of hard to reach a low of 139.24. The Euro also breached 129, as optimism has grown greatly. Couple this with likely QE out of the FED tomorrow, has led to dollar weakness and a big drop in the dollar index.

Spread wise we have steepened as you would expect with the big fall in the Bund, but the shorter end of the curve has stayed pretty stagnant with only a slight upward move in the Euribors.
Below is some video analysis on the past weeks moves.

Bullish ECB but bad NFP

So we got the expected volatility last week as the ECB delivered on the promise that the market was expecting, and this in turn lead to Euro strength, as we traded above 1.28. As far as Bonds are concerned, we had a big sell of and traded 139 handle, on the new Dec12 Bund contract, its been a long while since we have had sub 140 prints in the Bund, and is a definite sign of more risk appetite.
We dropped as low as 139.42 in the Bund, on the back of the proposed Bond purchases from the ECB, but we pushed up over 100 ticks on Friday as US Non farm payroll disappointed, and was a timely reminder that the Global Markets are still sluggish and there's still along time till things will really turn around.
Have bounced twice from 139s, I expect mid 139s to be a buy as I cant see us falling too much more in this Bund.
Points of interest in the Bund to the Upside is 140.94-141, 141.38 and 142.48 to the down side, 139.42, 140.63.
Its a similar way Spreads pushed up on the back of Draghi actions, but faded this move on the disappointing non farm payrolls. I was trading the Mar14Jun14 quite a bit and was selling it up the way up from 7.5s to 8.5s, and this worked out as it came back down to 7-7.5s.
It was a similar story along the curve.
Looking forward, we have gone back to the sideways low volatility markets but looking for further progression out of Europe as well as FOMC press conference and projections on Thursday.

Bunds back up as Spreads retreat

So after the euphoria of the comments from ECB officials which sent spreads higher, we have now got a full retrace from that move as we are trading 4.5/5s in sep13dec13 after trading as high as 7.5, this is the case along the curve as we have flattened by 20 ticks + from earlier levels between sep13 and dec14. The fade was always the trade, but it was all about timing and with such a big move up at the time it was hard to know where it was going to stop.
Looking at things as they are, I'm favouring long here in the Euribor spreads as we are in this big range, and here I think we have good value. Secondly we have pushed up 300 ticks in the Bund since last week trading now at 143.90 after being as high as 144.37, but at the same time we have had a rally in the Euro as well as other currencies as we have had alot of dollar weakness.
Now with the Bunds heading towards highs (currently at 143.90) and dollar retreating, something has to give, and a long dollar short Bund trade could be a good hedge, as we enter September and the big players may be returning and see this disconnect.
143.60 was the level we spoke about in the last analysis on the break of 142.20, this has now turned to support after the break above it.  The Bund has pushed higher since then so a break of this support could see us trade back down below 143, with the next targets as 142.55 and 142.20.
Alot of the movement will hinge on what Draghi will be saying at the ECB press conference next week as the market is eagerly anticipation some type of decisive action, so there could be a lot of positioning before then as speculation will continue till the meeting.
So hopefully September will provide more volatility and volume then we have had recently!

Bond Market Analysis: August

A quick look at the moves over the past few weeks, as the unwinding of some cramped trades has lead to Bunds falling over 500 prices from its high and a big steepening in the Bond Yield curve as one would expect with such a down move.

Big Drop In Bunds as Euribor Spreads soar higher

In what was one of the most crowded trades in the market, the drop in the Bund lead to a domino effect as we came off over 250 points in over a day as we traded below 141 this morning, before seeing some retrace currently trading at 141.70.
This big move in the Bund was accompanied by a big stock move, or a big move in the Euro which suggests its Bond specific, as traders may be betting on a big announcement from European officials when they get back from there summer break.
This move down in the Bund, prompted a big drop in Euribors also and hence some major steepening along the curve. Spreads moved more then I have seen in a long time, with barely any retrace making it a very difficult and tough day to trade, especially for mean reversion traders like myself. What made it harder was that there was no real apparent news for this big move, so no real warning either.
Mar14Jun14 was trading 7.5/8s before trading as high as 10s this morning. This action has been the same along the curve, with bigger moves on wider maturity spreads.
I've been selling these all the way up, and I'm holding put as personally I think this is overdone, but Im slowly taking bits of the table to lower risk, but this by far has been the most trend day so far of the year I can remember. But I guess its better then flat lining.
Although the move up yesterday was on low volume as expected in August, so hoping for some type of retracement.
Not much else out for the week, so will be taking it easy, watching where these Euribor Spreads settle.

Introduction to Calendar Spreads

An introduction into the basics of Calendar Spreads, and with some real time example with the Eurodollar Future.