Eur & Usa Yield Curve Segment Analysis- (2's 10's) Weekly Chart

Every week, we intend to publish commentary on various Government Bond Yield Curves, both as individual curves, and also analyse the movement of spreads between them.

In these examples,we will overlay one of our Trend following models on a particular segment of each of the curves and highlight the most recent trading entry & exit signals.

Today, we explore 2 yr versus 10 yr on both the Eur and USA curves (Weekly) going back to 2004 and also take a look at the 10 yr spread  between both curves. The Chart is colour coded for illustration as follows:

Blue:=Flattening  Black:=Neutral  Red=Steepening* (2's outperform 10's)

Chart 1 [Click to enlarge]

In August, most Fixed Interest continued to push higher (in price terms, lower yields) while Equity markets weakened but it is interesting to note an acceleration in the change in the front segment of Curves
eg: Eur  2's 10's flattening from -220 bps on 31 May to current -157 bps.

We are not interested in any fundamental justification and timing for such a move, only a cold statistical analysis of the price behaviour

Curve Segment: Eur 2yr v's Eur 10 yr
Trend : Flattening (2's underperform)
Entry signal 24/5/10 -218 bps
Current: -157 bps
Resistance: -151 bps
Support : -168 bp
Exit Signal: none

If we now examine the USA 2's 10's  Curve, roughly the same change in bps has been evident with a move from -270 bps to -208 bps.

Chart 2 [Click to enlarge]

Curve Segment: USA 2yr v's USA 10 yr

Entry signal 17/5/10 -266 bps
Trend: Flattening. (2's underperform)
Current: -208 bps
Resistance -196 bps
Support -214bps
Exit Signal: none

Comparing the Spead between the two curves at

10 yrs shows a narrowing from -90 bps to -40 bps.

Of course this does NOT include any calculation of movement in FX. During this period EurUsd fell from circa 1.3300 to 1.1900 and is currently 1.270


 Chart 3 [Click to enlarge]

Yield Curve Spread: Eur 10yr v's USA 10 yr

Trend: Eur < USA

Entry Signal 1/06/10  at -66 bps

Current: -43 bps

Resistance -24 bps
Support -51 bps
Exit Signal: none

Note
All Curve segment plays should be volatility/duration weighted adjusted

More next week . Enjoy