Thursday, September 14, 2006

Opening up a short in Bunds...3.80%...YOURS!

Sold £5/tick of Dec '06 Bund futures at 117.26, corresponds to about
3.80% yield on the 10 year Bund. Nuts.

ECB at 3%, not happy with rates so low, clearly going up, money supply
way above target, inflation above target for 5 years in a row indicating
that the ECB is consistently BEHIND the curve in controlling inflation,
which should hurt longer bonds. The talk in the market place seems to
like the 2s/10s inversion trade, but that should only happen if the ECB
hikes too fast, and clearly with inflation consistently above their
target, I don't see why you would think they would over-tighten.

ECB will probably be at 4%-plus a year ahead, and the economy will
continue to expand in Europe. I think Bunds should easily get to 4.50%.
I'll add risk onto this trade as the move gets underway. Happy to risk
£10k, and think 3.30% is a worst case scenario, so need about £500/basis
point which is ~ £60-£65 per tick on futures (duration around 8).

Get involved.


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