This chart is the yield difference between 2y (Schatz) and 10y (Bund) german bonds.
2y outright is trading at -0,83 % annual yield. (This means you have to PAY to Germans if you want to hold their debt for 2 years)
10y outright is at +0,33 % annual yield.
2y/10y spread differential is then +116 bps, (1,16 %). The fundamental reasons we al know. Schatz is trading negative due to negative ECB rates and QE, plus banks and real money bond funds must park their cash somewhere.
But can it be justified technically and in terms of forward inflation?
I think all those who are holding German debt in any maturity will surely lose money with effectively negative real rates as Inflation has started to pick up in Europe too. No question this is an insane bubble, which can not be justified by any macroeconomic rationals.
Technicals:
Weekly:
- Ichimoku is bullish, but the spread is far above its equilibrium level, which is ard 0,87 % now (87 bps)
- There is a possibility of a major bearish wedge building
- On top of this wedge we see some negative divergence in Heikin-Ashi indicators and in EWO.
- MACD also signals indecision, possible start of consolidation.
- Heikin-Ashi candles have been showing indecision for last 5 weeks!. haOscillator is stuck at center line.
Daily:
- Ichimoku has bullish bias, but since 02/Feb losing its bullish momentum. Averages got flat and Tekan-Kijun stay together, as price has not been able to break above 118 bps. This level seems to block further steepness of the bond curve.
- Heikin-Ashi is mixed.
- MACD also signals consolidation.
- Key supports: 114 bps and more importantly 107 bps below. Should these levels break down, we could see a quick flattening of the German 2y/10y spread down to 90 bps (0,90 %).
The flattening can happen both as bull and bear flattening, which means during European risk off sentiment Bund (10y) can be bought more agressively, while in case of less dovish ECB or some taper hints Schatz (2y) would be offloaded quickly to push its yield higher from the nonsense -0,83 % annual.
Outright I am bearish for bonds and I think German yields are in a real bubble. But outright I short the 5y segment (BOBL). As a curve flattener (spread) trade I will watch both 2y/10y and 5y/10y spreads.
2y outright is trading at -0,83 % annual yield. (This means you have to PAY to Germans if you want to hold their debt for 2 years)
10y outright is at +0,33 % annual yield.
2y/10y spread differential is then +116 bps, (1,16 %). The fundamental reasons we al know. Schatz is trading negative due to negative ECB rates and QE, plus banks and real money bond funds must park their cash somewhere.
But can it be justified technically and in terms of forward inflation?
I think all those who are holding German debt in any maturity will surely lose money with effectively negative real rates as Inflation has started to pick up in Europe too. No question this is an insane bubble, which can not be justified by any macroeconomic rationals.
Technicals:
Weekly:
- Ichimoku is bullish, but the spread is far above its equilibrium level, which is ard 0,87 % now (87 bps)
- There is a possibility of a major bearish wedge building
- On top of this wedge we see some negative divergence in Heikin-Ashi indicators and in EWO.
- MACD also signals indecision, possible start of consolidation.
- Heikin-Ashi candles have been showing indecision for last 5 weeks!. haOscillator is stuck at center line.
Daily:
- Ichimoku has bullish bias, but since 02/Feb losing its bullish momentum. Averages got flat and Tekan-Kijun stay together, as price has not been able to break above 118 bps. This level seems to block further steepness of the bond curve.
- Heikin-Ashi is mixed.
- MACD also signals consolidation.
- Key supports: 114 bps and more importantly 107 bps below. Should these levels break down, we could see a quick flattening of the German 2y/10y spread down to 90 bps (0,90 %).
The flattening can happen both as bull and bear flattening, which means during European risk off sentiment Bund (10y) can be bought more agressively, while in case of less dovish ECB or some taper hints Schatz (2y) would be offloaded quickly to push its yield higher from the nonsense -0,83 % annual.
Outright I am bearish for bonds and I think German yields are in a real bubble. But outright I short the 5y segment (BOBL). As a curve flattener (spread) trade I will watch both 2y/10y and 5y/10y spreads.