The way Italian and Spanish bonds rebounded this morning from a 30bp down-trade on the rumour that the ECB and China were in buying paper – if the ECB had been in, it would not have stopped at being a rumour – gives me the feeling that at these levels the street is more scared of being caught short than being caught long.
Index investors have pretty much all stripped their overweights (in as much as they had any) and I would look for pretty strong support here. The market might be a better buy than sell but don’t expect to find any bargains.
Dealers will squeeze the rebound until the pips squeak.
