Article / 25 October 2016 at 12:16 GMT

UPDATE: Bonds are still on the wane

Technical Analyst / FuturesTechs
United Kingdom
  • Bund and T-note futures weaken along with gilts
  • This week has started with a weaker tone that looks to extend
  • We've established key levels for all three against this backdrop

By Clive Lambert

A few weeks ago I published a piece here about my worries around bond prices weakening. Since then we've seen further weakness, particularly in UK gilts but also in the bund and T-note futures, the benchmarks for European and US bonds respectively.

Until last week, when we saw something of a rebound across the board, bund and T-note futures both recovered from important Fibonacci supports, so the bulls may have been thinking that all was well once more. But this week has started with a weaker tone and this looks set to continue, so I thought I'd "go again" and look at the charts for these three key markets and see what they're saying, and what the key downside levels/targets are:

Bund futures (Dec '16):

Bund Daily
Last week's rally was fairly unconvincing and ended with weakness yesterday from 164.54 to 163.86. We have extended lower so far today to 163.73 and look good to retest 163.06, 162.81 and 162.56, the latter being the low/bounce from mid September. Below here we can look for 161.87, 161.48 then 161.02.

US T-notes (10-year notes), Dec '16: 

T-Notes
 
This has also found some buyers at support in recent weeks. 129.23 was the Fibonacci support in question. We got down to 129.17 before rallying on October 12. (Remember this trades in 32nds, so the ".17" is 17/32nds). As you can see from our chart this held the green line, which is the 200-day SMA. As you can also see we're close to retesting this well watched moving average today. Below here and 129.17 look for 128.20, 128.00 then 127.18.

One reason this chart is so bearish is the failure to even close above the shorter term Fibonacci resistance at 130.12 on this recovery...

Long gilt futures (Dec '16):
Gilt Futures
 
This is the one that's been leading the way lower, giving a number of sell signals around the middle of the month, breaking the neckline of a Head and Shoulders topping pattern, Fibonacci support AND a rising trendline, all within the space of a few days. And we've gone lower since, down to a low of 125.30 last week, when a "Hammer" candle on the daily stopped the rot.

Upon seeing this reversal candle the bulls were tasked with getting us back above 127.19 (the broken Fibonacci level). Despite a couple of attempts in recent sessions they're not managing this, at least not on any kind of sustained basis.

This suggests we'll soon be retesting 125.30. Below here 124.35-55 is a big area of support. Below here look for 123.21 then 122.65.

– Edited by Clare MacCarthy
Clive Lambert is chief technical analyst at FuturesTechs

3y
BertHH BertHH
Hi Clive, another question please: EURGBP I am in here shorting at all called selling levels. Stop 0,9000. Hopefully this stop is holding.....Thank you in advance for a very short response!
3y
Clive Lambert - FuturesTechs Clive Lambert - FuturesTechs
Re EURGBP if we get above 8978 we could go to 9027 quickly. You're brave shorting a move like this! Good luck!
3y
BertHH BertHH
Yes Clive thank you so I move my stop above this new level---cause I believe in the following donside potential as you mentioned.
3y
Clive Lambert - FuturesTechs Clive Lambert - FuturesTechs
UPDATE: Bund Futures have sold off sharply in the last 24 hours, in line with everything I said above. We have filled the "Brexit day" gap at 161.88 and now we're eyeing trend support which sits at 161.58 today, as is the 200 day SMA.
3y
Clive Lambert - FuturesTechs Clive Lambert - FuturesTechs
Gilt Futures have broken below 125.30 and we're now in the Brexit gap, the bottom of which is 123.21. We are getting close to the 124.35-55 area that I have also highlighted as important.

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