BUNDS: The US FOMC is at the forefront Today

Late on Friday Natixis recommend long 15-Year SPGBs Vs. Bunds, targeting a move to 71bp.

• They noted that “following the recent tightening of EGB sovereign spreads, particularly with the 10Y BTP-Bund spread falling below 100bp, the market is now assessing the potential for further tightening in the current risk environment. We have identified several factors - macroeconomic, fiscal, supply, and value at risk - that lead us to adopt a bullish stance on the 15Y Bono vs. Bund, as we believe there is still potential for additional tightening compared to BTPs or OATs”.

Bund futures have recovered from overnight lows of 130.12, last printing 130.29.

• Initial support in Bund futures located at 129.13, while resistance comes in at 130.65.
• The recent move higher undermines the recent bearish technical theme and suggests the move down between Apr 22-May 15 was a correction.
• Yields flat to 1.5bp higher, curve steeper, 10s last 2.60% after threatening a break above 2.70% last week.
• Weakness in Tsys provided some pressure in Asia-Pac trade, after the U.S. lost its Aaa rating status at Moody’s late on Friday.
• Elsewhere in Europe, the Portuguese PM’s party won the most votes in the election held over the weekend, slightly increasing its seat count in the process, but it remains short of an absolute majority. This means that a collation/minority government is set to be formed, with focus on post-vote negotiations (generally matching expectations).
• No real impact from weekend ECBspeak (more on that to come in the early EUR STIR bullet).
• Final Eurozone CPI data for April is due this morning, with comments from Fed’s Muller also scheduled.
• On the supply front, Slovakia will kick off issuance for the week today with a SlovGB auction (3.00% Feb-28, 3.00% Nov-31, 3.625% Jun-33 & 3.75% Feb-35 lines). Elsewhere, the EU will sell up to up to EUR2.5bln of the 3.125% Dec-28 line, up to EUR2bln of the 2.50% Dec-31  line and up to E1.5bln of the 3.25% Jul-34 line. Note that the EFSF sent an RfP last week and we expect issuance from them today/tomorrow.

• RES 4: $75.81 - High Feb 20 
• RES 3: $74.63 - High Apr 2 and a bull trigger
• RES 2: $68.28 - 61.8% retracement of the Apr 2 - 9 sell-off 
• RES 1: $66.45/81 - 50-day EMA / High May 13           
• PRICE: $65.04 @ 07:10 BST May 19
• SUP 1: $58.00 - Low April 9 and the bear trigger     
• SUP 2: $56.29 - 2.236 proj of the Feb 20 - Mar 5 - Apr 2 price swing
• SUP 3: $55.10 - 2.382 proj of the Feb 20 - Mar 5 - Apr 2 price swing
• SUP 4: $54.00 - Round number support

The trend condition in Brent futures is unchanged, it remains bearish and recent gains appear corrective. Attention is on key resistance at $66.45, the 50-day EMA. It has been pierced, but remains intact for now. A clear break of this average would highlight a stronger bull cycle. On the downside, a reversal lower would refocus attention key support at $58.00, the Apr 9 low. A breach of this support would resume the downtrend.