Sell Italian Bonds But US Treasury Bulls Beware, Warns BofA

Tyler Durden's picture

The combination of deteriorating European assets (topping European bank stocks and vulnerable peripheral debt) and poor price action (the impulsive break of 6m wedge support at 1.3685) augurs for further EURUSD weakness, warns BofAML's Macneil Curry, but it is Italian bond futures that broke a long-term uptrend and "it's time to sell the bounce in BTPs." While 30Y and 10Y US Treasuries are in medium term bull trends, he warns they are approaching a 'basing zone' - bond bulls ("if there are any" he jokes) beware.

 

Via BofAML,

Our arguments for selling €/$ remain unch. The combination of deteriorating European assets (topping European bank stocks and vulnerable peripheral debt) and poor price action (the impulsive break of 6m wedge support at 1.3685) say the trend has turned. We wish to sell a bounce at 1.3735 and would look to add at 1.3825. Price should not trade above 1.3919 and CAN'T TRADE ABOVE 1.3993. Targets are 1.3104 and then 1.2775/1.2685. WE KNOW THAT THE STOP IS WIDE AT THIS STAGE. As such, one should place a partial stop loss at 1.3920.

NOW, WE ALSO WANT TO SELL JUNE BTP FUTURES. Yday's impulsive decline and closing break of the 21d (now 124.24) says the trend has turned lower, targeting the confluence of congestion between 121.18/120.61. Gains can't break yday's high at 125.83.

Sell June BTP futures at 124.67, risking 125.84, targeting 121.18

30yr & 10yr Treasury yields approach their basing zones. Bulls (if there are any) BEWARE.

Both 30yr and 10yr Treasuries are in medium term bull trends. We expect these to continue. HOWEVER, both are approaching levels from which we would expect yields to base and resume their larger, long term BEAR TRENDS. Specifically,3.280%/3.253% in 30s (yes, this is VERY CLOSE) and 2.420%/2.346% in 10s (a bit further away). Back above YTD trendline support at 3.486% in 30s and the old Feb-04 low at 2.568% in 10s say that the larger bear trend is resuming. TO BE CLEAR, the medium term bull trend is still in force, but its conclusion is drawing closer - particularly in THE BOND.

From a US equity perspective, we continue to watch the 50d in the S&P500 at 1867.69. A close below here exposes 11m channel support at 1819.90 and potentially below.