Lot of people asked me how comes that Bund futures contract in March could go so high, why is that the currently traded June contract is a lot lower while the cash market 10Y german bonds are also lower in yield (higher in price) since then?
First answer: I don't exactly know
Second answer: during calculation of a certain derivative Bund futures contract, system takes into consideration the so called "Cheapest to delivery" (CTD) cash bond as an underlying asset. My assumption is that vefore March expiry, the CTD cash bonds maturity, or rather its modified duration was a lot shorter than the recently used 10 year cash benchmark.
Means also thats yield was in fact a lot lower than the 10y benchmark! Don't forget, German cash bond curve is trading at negative yields upto 7 years! In case the March CTD was a shorter one, it may have had a yield of 5 bps instead of 20 bps.
+ there is also the forward curve contango issue.
Given this Futures contract mismatch it is a bit hard to evaluate technically the continous Bund futures chart. That's why on Twitter I ofte post the 10y Benchmark Yield chart too. Anyway, let's see how it looks:
Weekly:
- Ichimoku is bullish. First key support is at 160,70. Ultimate strategic support is at 157,30!
- Heikin-Ashi is hard to evaluate. The big bearish candles were due to the above mentionned March/June contract switch. If we strictly look at last 3 candles, one thing is sure. It is still slightly bullish, but misses momentum gain! See also haDelta.
Not a surprise given the fact ECB signalled a pause for now (at least short term they will be unlikely to deploy more easing), while also I see early signals of slight inflation pick up globally. In this case what is the value of holding a 10 year bond at 0,15 % annual yeld??? Hoping for a -0,05 %? Not for me thanks.
Daily:
- Ichimoku setup is neutral. Price has been ticking up in a thick Kumo, trying to climb above Kijun for 5 days now, but it is always struggling ard 153,75. Forward Kumo is one point -> not much information this time (again, due to March/June contract switch)
- Heikin-Ashi is bullish, but there is not much momentum! Even if I take out the big dip from haDelta, it has obviously built a negative divergence.
- Supports below: 163,04 / 162,47 / 160-160,70 (trendline, but that's below Kumo level)
- EWO I consider neutral
The bond market is in a lot bigger bubble than Stocks!
I know, Central Banks have one and only one goal! Keep real rates negative as long as possible. Evene if inflation picks up to 2-3 % they will tolerate that and will be very reluctant to raise rates. Simply because on global debt side they have cornered themselves together with governments and corporates! This means front end of curves will stay lower for longer, BUT the yield curves may start to steepen at some point! That means long end bonds can selloff once real money investors realise the truth of real inflation / nominal rates vs real rates / central banks game triangle.
For these reason I will only look for sell signals in Bund too! I don't see the upside of holding long Bund positions.
First answer: I don't exactly know
Second answer: during calculation of a certain derivative Bund futures contract, system takes into consideration the so called "Cheapest to delivery" (CTD) cash bond as an underlying asset. My assumption is that vefore March expiry, the CTD cash bonds maturity, or rather its modified duration was a lot shorter than the recently used 10 year cash benchmark.
Means also thats yield was in fact a lot lower than the 10y benchmark! Don't forget, German cash bond curve is trading at negative yields upto 7 years! In case the March CTD was a shorter one, it may have had a yield of 5 bps instead of 20 bps.
+ there is also the forward curve contango issue.
Given this Futures contract mismatch it is a bit hard to evaluate technically the continous Bund futures chart. That's why on Twitter I ofte post the 10y Benchmark Yield chart too. Anyway, let's see how it looks:
Weekly:
- Ichimoku is bullish. First key support is at 160,70. Ultimate strategic support is at 157,30!
- Heikin-Ashi is hard to evaluate. The big bearish candles were due to the above mentionned March/June contract switch. If we strictly look at last 3 candles, one thing is sure. It is still slightly bullish, but misses momentum gain! See also haDelta.
Not a surprise given the fact ECB signalled a pause for now (at least short term they will be unlikely to deploy more easing), while also I see early signals of slight inflation pick up globally. In this case what is the value of holding a 10 year bond at 0,15 % annual yeld??? Hoping for a -0,05 %? Not for me thanks.
Daily:
- Ichimoku setup is neutral. Price has been ticking up in a thick Kumo, trying to climb above Kijun for 5 days now, but it is always struggling ard 153,75. Forward Kumo is one point -> not much information this time (again, due to March/June contract switch)
- Heikin-Ashi is bullish, but there is not much momentum! Even if I take out the big dip from haDelta, it has obviously built a negative divergence.
- Supports below: 163,04 / 162,47 / 160-160,70 (trendline, but that's below Kumo level)
- EWO I consider neutral
The bond market is in a lot bigger bubble than Stocks!
I know, Central Banks have one and only one goal! Keep real rates negative as long as possible. Evene if inflation picks up to 2-3 % they will tolerate that and will be very reluctant to raise rates. Simply because on global debt side they have cornered themselves together with governments and corporates! This means front end of curves will stay lower for longer, BUT the yield curves may start to steepen at some point! That means long end bonds can selloff once real money investors realise the truth of real inflation / nominal rates vs real rates / central banks game triangle.
For these reason I will only look for sell signals in Bund too! I don't see the upside of holding long Bund positions.
