Halister News

(Bloomberg) -- Bund/UST 10Y spread continues to carve a bottom after widening momentum abated in late November, with key 216bps TD risk level respected ahead of crucial ECB meeting this week, Bloomberg technical analyst Sejul Gokal writes.

• See chart here; spread at 202bps vs 215bps seen late Nov.
• Tactical compression faces potential widening interest at 201bps (21-DMA, Fibonacci); however, scope for much deeper correction to 191bps which could bring daily and weekly momentum valuations to more neutral readings
• Daily MACD has turned up, and produced a bull cross this week, adding to tightening impetus
• Spread compression levels in focus at 195-194bps and 191bps
• Potential tightening catalyst could come from ECB this week, should they fail to exceed already dovish market expectations
  • Anything less than 6-month QE extension at current EU80b per month could bring echoes of Dec. 3, 2015, when underwhelming stimulus sent bond yields and the euro surging
    • Bunds may still come under pressure should ECB deliver on the above, but send a signal that stimulus will eventually end as per a report early in the month
  • Comparison of January skew today vs Dec. 1 (date of report) shows low delta calls have come off, widening the low delta Bund skew for puts (click here for skew comparisons) as topside optimism fades

• NOTE: Sejul Gokal is a technical strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice