Bond Traders Flock To Safety as Cyprus Banks Open
???? Fundamentals
Bond futures are higher for the fourth consecutive session, as Cyprus’ banks reopened for the first time in nearly two weeks. The embattled island nation has put safeguards in place to prevent bank runs, including a ?300 daily withdrawal limit and not allowing any funds to leave the nation.
Despite its small size, the Cyprus situation has reminded traders that the banking situation in the EU, despite improving, is far from being well. Italy’s cost of funding has risen, sparking fears that Italy may be the next Eurozone nation to ride the carousel of panic. A result of the turmoil has been a flight to quality for fixed income traders, which has benefited US treasuries.
Yesterday’s soft pending home sales data also makes it difficult to argue that the Fed will remove its stimulus programs anytime soon. Economic growth continues to be a major concern for the US, EU and Japan. There has been some talk that traders may include China in the mix of nations more concerned about growth than inflation, which is rare.
???? Technical Notes
Turning to the chart, we see the June Bond contract rallying in recent sessions, making a run at resistance at the 145-00 level. A move above the 100-day moving average could also offer confirmation of an upside breakout should the futures move above 145-00.
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The average currently sits at 146-05. A breakout above this level suggests that Bonds could fall into the wide trading range between the mid 140’s and low 150’s, where the futures spent much of 2012. A result of the recent price action has been the overbought condition of the RSI. The momentum indicator has remained relatively flat, hinting at near-term weakness.
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