BONDS: Uptick In Energy Prices Likely Factoring Into Bond Weakness

• RES 4: $35.226 - 61.8% of the 2011 - 2020 major bear leg  
• RES 3: $35.167 - 2.00 proj of the Aug 8 - 26 - Sep 6 price swing 
• RES 2: $33.125/34.903 - High Nov 1 / High Oct 23 and the bull trigger
• RES 1: $31.290/537 - 50-day EMA / High Nov 19                           
• PRICE: 30.677 @ 08:11 GMT Nov 27 
• SUP 1: $29.677 - Low Nov 14      
• SUP 2: $28.446 - 76.4% retracement of the Aug 8 - Oct 23 bull cycle 
• SUP 3: $27.686 - Low Sep 6 
• SUP 4: $26.451 - Low Aug 8  

Medium-term bullish conditions in Silver remain intact and the bear cycle that started on Oct 23 still appears to be a correction. However, the corrective cycle remains in play. Price has recently breached the 20- and 50-day EMAs, and traded through a trendline drawn from the Aug 8 low. This has exposed $28.446, a Fibonacci retracement. Initial firm resistance to watch is $31.290, the 50-day EMA.

We have been monitoring the SPGB/OAT/PGB 10-Year fly for some and the structure sits at the lowest level seen since ’06, nearing -50bp.

• Last -48bp vs. ’06 lows of -66.3bp
• With French fiscal and political risk remaining present, it is hard to envisage a scenario whereby the trend is reversed, at least in the immediate term.
• A brief recovery was seen in late October/early November, as passive index inclusion flows into PGBs faded and the fiscal impact of the Valencia floods was considered.
• That was before the French risks mentioned above re-emerged, which helped relative fiscal trajectories of the 3 countries reassert themselves in the structure.
• Indeed, Commerzbank warn that “OATs remain vulnerable, above all vs. Iberia.”

Fig. 1: SPGB/OAT/PGB 10-Year Butterfly (%)

Source: MNI - Market News/Bloomberg