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RGL Daily Thinking


Sept 28th.

Two pieces of news hit the wires late yesterday. German finance minister rejected leveraging EFSF and up to 7 Eurozone members are demanding higher haircuts from private holders of Greek bonds.

Markets promptly gave back some of the gains into the close, but they are surprisingly stable to slightly up this morning. In particular bund futures managed to hit a new local low this morning.

This just shows once again that the road towards EFSF approval, Greek disbursement, and further Eurozone safety net enhancements is not going to be smooth. Headline risk remains high. Consequently positions should be small, and stops wide.

At the same time it seems that the trend right now is for the risk markets to continue to strengthen, up to the point when it becomes clear how the new solution (leveraged EFSF ?) might look like. In this scenario Bunds are vulnerable as they priced in a lot of uncertainty premium. We like short position in Bunds here. Equally in the US we prefer to exploit the rising market through short 10Y UST futures as they benefitted strongly from both Operation Twist anticipation and flight to quality.