I think that is what has started here. The holders of German bonds (and its ) started to realise something: the big idea of long term deflation and the trades related to deflation is a BS. No one can believe that there will be deflation for such a long period of time. Or if there would be, then ECB's (which sent down European yields to these extreme lows artificially) worth exactly nothing! Now ask some questions:
- does it fundamentally make sence and worth to hold a 10y German bond at 0-0,45 bps yield? Of course it does not.
- Would this yield be so low without such a fckd up programe, which had been frontrun by whole mkt for 8-10 months? Of course not.
- Will the ECB finish its bond buying any time soon? Of course not.
I think these are the main questions that investors ave been asking and what have been moving this mkt.
One thing is sure: a yield curve steepening has started and long end yields jumped some, so mkt has started to price out the big the deflation trade. But this is still not a big drama in terms of nominal yields and lvls. The big drama is/will be the uncontrolled LEVERAGE, what the ECB has forced on the mkt. At extremely low nominal levels you have take extremely high leveraged risk to make the same possible amount profit on your investment, or trade.
So Mr. Gross will be right... sometimes... but not now. As ECB is probably realising the same problem, and starts to manage here. They were so "upset" not finding enough eligible bonds to buy when the whole German curve was trading negative upto 9 years. Do you think they will not start buying now? :-)
So the fundamentals and game theory is well reflected in the charts. We'll likely see a top building period now.
Bund has reached important support at 156. Short term it can correct up to 157,50-158, but longer term the game will remain the sell on tops strategy.
I enterred some long positions at 156+, with tgt 157,50.