German Bund yields: secular reversal
German Bund yields (
DE10Y
) are in the midst of a secular trend reversal after the breakout of both the 200-month moving average and a 40-year descending trend line.
Yields on the 10-year Bund have never gone over the 200-mma mark before.
The next barrier is the psychological threshold of 2%, which coincides with the September 2013 highs and 23.6% of the Fibonacci retracement level (all-time highs of 1981 to all-time lows of 2020).
Breaking above 2% could then see the 3.7-3.8% yield as target (2009 highs and 38.2% Fibonacci).
The ECB's forthcoming interest-rate hikes and Germany's rising inflation trend, which reached 7.9% in August, the highest level since German reunification, can exert substantial upward pressure on Bund yields in the coming months.
In particular, the market may begin factoring in a greater volume of Bund emissions from the German state as a means of financing an expanding deficit caused by energy subsidies. The latest €65bn package is worth more than 3% of the German's GDP.
With the ECB expected to reduce (or completely stop) government bond purchases, the German government would need to find buyers who demand higher yields due to rising interest rates and inflation.
The current real rate of Bunds (the difference between the nominal and inflationary rates) is -6%, which is close to the lowest level ever.
Idea written by Piero Cingari, forex and commodity analyst at Capital.com
DE10Y
) are in the midst of a secular trend reversal after the breakout of both the 200-month moving average and a 40-year descending trend line. Yields on the 10-year Bund have never gone over the 200-mma mark before.
The next barrier is the psychological threshold of 2%, which coincides with the September 2013 highs and 23.6% of the Fibonacci retracement level (all-time highs of 1981 to all-time lows of 2020).
Breaking above 2% could then see the 3.7-3.8% yield as target (2009 highs and 38.2% Fibonacci).
The ECB's forthcoming interest-rate hikes and Germany's rising inflation trend, which reached 7.9% in August, the highest level since German reunification, can exert substantial upward pressure on Bund yields in the coming months.
In particular, the market may begin factoring in a greater volume of Bund emissions from the German state as a means of financing an expanding deficit caused by energy subsidies. The latest €65bn package is worth more than 3% of the German's GDP.
With the ECB expected to reduce (or completely stop) government bond purchases, the German government would need to find buyers who demand higher yields due to rising interest rates and inflation.
The current real rate of Bunds (the difference between the nominal and inflationary rates) is -6%, which is close to the lowest level ever.
Idea written by Piero Cingari, forex and commodity analyst at Capital.com