Bunds have reached key levels where they can begin to outperform again on a cross market basis, according to George Davis, Chief FIC Technical Analyst at RBC Capital Markets.
The Treasury-Bund spread has undergone a sharp correction since the beginning of the year. With the studies now moving to oversold levels, Davis notes that the spread is bumping up against channel support at 131 bps. If the widening trend is valid, then this level and the 2005 high at 122 bps should attract renewed widening interest for a test of congestive resistance at 146 bps. A daily close above this level would place the uptrend on a firmer footing, targeting resistance levels at 150 and 156 bps thereafter. Davis advises placing a stop below 117 bps to take advantage of this view.