in association with

Market Bulletin 10th December 2010

Bonds: is the top in place?

The Technical Trader’s view:
Note US Treasury 10 Year COMP Continuous 131
128-22.5 All-Time- High 61.8%
130
161.8%
50.0% 129 WEEKLY CHART
128
127
126
125
The US Treasuries has
122-14.5

121-21.5
124
fallen hard from close to
123
122 their Pivotal Prior Highs at
121
120
128-22, through the first
119
supports of significance at
118

117 121-21.5 and 122-14.5.

116
115

114 This is a significant

113

112
breakdown, and should not
111 be underestimated.
110

109-20.5 December 109

2006 High support
108 But the lack of a compelling
107

106
Reversal pattern or Top
105 formation robs the bears of
104
short-term momentum.
103

102
^32
O N D 2007 A M J J A S O N D 2008 A M J J A S O N D 2009 A M J J A S O N D 2010 A M J J A S O N D 2011

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This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sources
believed to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness or
accuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold or
held on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein were
considered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,
other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,
relationship or arrangement in relation to them.
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Euro Bund Continuous 137

136
135 WEEKLY CHART
Fibonacci Cluster 132.12 -134.44 134
133
132
131 So too, has there been a
Parallel channel from 1995 130
129 vicious pull-back in the
128
126.53/52
127
Bunds from the massive
126
resistance of a cluster of
125

124.60 the High from 2005 124 Fibonacci levels.

123
122
121
120
But note that in this case the
119 market’s steep decline has
118.48 High 118
117 yet to break the vital band of
116
115
support 124.60-126.53.
114
113
112 The diagonal from 2008 is
111
an added bear factor, but
110
109.66 Low 109 that band needs to be
108
broken for the bears to really
15000
10000
5000
triumph.
x100

2006 2007 2008 2009 2010 2011

Nor indeed, like the TNote,

is there a top formation in
place yet in either the
medium or short-term…

These bond markets have

come far and fast, the
source of the next bear
impetus is as yet unclear.

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Authorised and Regulated by the FSA 124 REGENTS PARK ROADLONDON NW18XL TEL +44 (0) 7849 933573
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This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sources
believed to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness or
accuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold or
held on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein were
considered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,
other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,
relationship or arrangement in relation to them.
 in association with

The Macro Trader’s view:

The long bull run in bonds that tracked the financial crisis/recession increasingly looks over.
Earlier this year, when growth started to return to the developed economies, Government bond
markets remained well-supported. Not now.

When the Euro zone sovereign debt crisis broke in the spring, bonds rallied anew as traders
rushed into US Treasuries, UK Gilts and Euro bunds; traditional safe-haven trades. But now
they are all under pressure despite the Euro zone debt crisis gripping markets again, forcing
Ireland to seek an EU/IMF/EZ/UK rescue, and other peripheral Euro zone Countries seeing
their bond yields hit new highs.

Basically traders fear the fiscal stance of many Euro zone Countries are unsustainable. They
are also becoming anxious about Germany’s ability to underwrite too many more rescues. In
fact, the German Government is anxious too. Chancellor Merkel does not want to increase the
rescue fund. The Chancellor would also like more of the burden of future rescues to fall on
private investors in Eurozone government bonds; this too has unsettled bond markets with the
once safe Bund looking vulnerable to further selling.

Then there is the US fiscal position. President Obama has run up enormous debts, but unlike
most Euro zone Countries that have implemented austerity budgets, he believes the US can
go on writing IOU’s forever.

In the UK the Government has implemented drastic spending cuts, and so far the economy is
holding up well. Some think once the cuts bite growth will slow, others think the Bank of
England should be hiking rates to control inflation which has remained persistently above
target for an extended period. The Gilt draws no benefit from the spending cuts and also looks
vulnerable to further selling.

But recent bearish price action has its roots in the US. Politicians have been arguing about
whether or not the Bush era tax cuts that are about to expire, should be renewed/extended to
help support the economy. President Obama had opposed this. He argued they were too
focused on the middle classes and did little to help the poor.

SEVEN DAYS AHEAD Professional trading guides and recommendations for the World's markets

Authorised and Regulated by the FSA 124 REGENTS PARK ROADLONDON NW18XL TEL +44 (0) 7849 933573
E-MAIL MSTURDY@SEVENDAYSAHEAD.COM WWW.SEVENDAYSAHEAD.COM
This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sources
believed to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness or
accuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold or
held on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein were
considered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,
other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,
relationship or arrangement in relation to them.
 in association with

But suddenly he changed his mind this week and agreed to extend them, subject to votes in
both houses of Congress. However there are some powerful critics of this U turn on both sides
of the political divide.

The Bond markets took fright. If agreed, these tax cuts would add about US$1.0T to the
national debt in just 2 years and keep the budget deficit to GDP ratio at around 10%. This is
clearly unsustainable and Moody’s has again questioned the US’s ability to hold onto her AAA
credit rating in such an environment.

Traders fear such a move, which together with the Feds current QE2 policy would prove
inflationary as it amounts to a 2nd fiscal stimulus the US can hardly afford.

We judge the environment is turning increasingly bearish for Bonds and a vote in Congress in
favour of extending the tax cuts without off setting spending cuts, would likely provide the short-
term trigger the Bears seek.

Mark Sturdy
John Lewis
Seven Days Ahead

SEVEN DAYS AHEAD Professional trading guides and recommendations for the World's markets

Authorised and Regulated by the FSA 124 REGENTS PARK ROADLONDON NW18XL TEL +44 (0) 7849 933573
E-MAIL MSTURDY@SEVENDAYSAHEAD.COM WWW.SEVENDAYSAHEAD.COM
This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sources
believed to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness or
accuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold or
held on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein were
considered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,
other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,
relationship or arrangement in relation to them.