6th September - Bund weakness signals the next leg down for bonds
09 September 2013
TECHNICALS:
MONTHLYCHART
The market’s double failure around 145 set up a complex ( ie unclear) Top.
The break down through 139.77 completed the top.
Next stop 133.29.
Look closer.
DAILY CHART
Note the importance of the small bear H&S pattern acting as catalyst to drive the market through the 138.22 level.
Now, that low having been broken, the market is ratcheting down further.
The successive low above the market are good resistance on any attempted rallies.
The bears are in charge.
FUNDAMENTALS:
The Bund is now clearly a bear market and looks to have a long way to fall.
After enjoying a prolonged period of safe-haven buying driven by fears generated by the global financial crisis, recession and the Euro zone Sovereign debt crisis, traders are now looking to offload their holdings of government bonds generally. But we are interested in the Bund.
There are several factors that make the bearish price action in the Bund particularly interesting;
So given these bull factors why is the Bund selling off? Especially when US President Obama looks set to gain Congressional approval to launch limited surgical strikes against Syria, why is there no safe haven buying?
We think traders expect economic recovery to take hold in the Euro zone. In the US the recovery is moderate but has survived several scares, most notably last year-end’s fiscal cliff. In Japan the economic medicine appears to be working, the BOJ has just upgraded its growth forecast.
In the UK the economy is showing very encouraging signs. Only a few moths ago the governor of the Bank of England was still warning recovery would be slow, but the last two releases of the UK PMI Surveys reveal something very different, the recovery appears to be gaining momentum and the housing market looks to have come back to life too.
So, given the massive Central Bank holdings of government debt, traders are clearly beginning to position for the moment those holdings are liquidated.
Moreover, the Fed and Bank of England have made it known that short term interest rates will not rise any time soon, so as economic recovery accelerates, the yield curve will increasingly take the strain.
In the Euro zone the Bund was also bought as a proxy trade for a Euro break up. Although the member states of the Euro zone no longer have individual currencies, they do retain individual bond markets so a way of betting on a Euro fragmentation due to the sovereign debt crisis, was buy the Bund, sell the peripheral bond markets.
Since the fear of Euro disintegration has dramatically receded, traders have sought to unwind those trades. Therefore add all these factors together:
The Bund looks a heavy sell.
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12th September - Watch Gold: the retracement is over 
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05th Sep - Wheat Downmove Holds at Dual Support