Marketing Communication
Euro Rates Weekly
Start of the big short?
Group Economics Macro & Financial Markets Research Kim Liu +31 20 343 4669 kim.liu@nl.abnamro.com
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01 May 2015
10y Bund yields have jumped, which raises the question whether the Bund bubble is bursting We think it’s too early as we see no convincing reasons why yields should move higher We therefore remain bullish on Bunds and we hold on to our 10bps forecast We do expect a significant bounce in Q1 of next year A key trigger could be the 2016 March meeting as the ECB will add a year to its forecast horizon
And the supply monitor: Next week net supply will be positive with supply coming out of mostly core and semi core Bund yields have jumped off their lows
Our view on this is not yet. We think that the rise is only
Over the last few days, 10y Bund yields have risen sharply,
temporary as we see no convincing reasons why Bund yields
reversing much of the sharp decline seen since the ECB’s QE
could move consistently higher in the short term. We think that
programme began. Bloomberg even reported that the jump in
the most plausible explanation for the rise is an accumulation
yields has been the largest increase in 2y time. The closing
of several reasons coinciding in a short time frame. This
low for Bund yields was on 20 April, where they ended the
means that we remain bullish on Bunds.
session at 7bps. Since then, they have steadily climbed (and especially this week) to around 36bps. To compare, the current
What were the reasons of the spike in 10y Bund yields?
level is only 18bps lower than at the beginning of the year.
The spike may be partly related to some fears of an early ECB exit from QE given recent slightly better inflation and money
Bund yields have jumped in recent weeks
supply data. Eurozone HICP inflation was flat yoy in April
10y, %
according to the flash estimate, following -0.1% in March. But core inflation was steady at 0.6% yoy, still leaving it well below
0.6
the ECB’s goal for overall inflation in the medium term of close
0.5
to but below 2%.
0.4
Another reason which can have contributed to the rise in Bund
0.3
yields is that a fear of a Grexit is fading. Indeed, news on
0.2
Greece has been positive which may have sparked a relief 0.1
0 Jan-15
move in Bunds. But this can only explain part of the move. Feb-15
Mar-15
Apr-15
Also an increase of (longer dated) government debt supply could have fuelled an upward movement of 10y Bund yields.
Source: Bloomberg
Together with a lackluster German OBL auction, this rendered the bond market vulnerable. However, we note that supply
Has the short of our lifetime begun?
could dry up in the Summer and ECB buying will not stop.
Bund yields are still at extremely low levels given that the economy is recovering. The recent abrupt correction raises the
Finally, other reasons which are less tangible could also have
question whether the Bund bubble is bursting.
helped the move. One should then think of end of month repositioning and more importantly a less liquid market. We
Insights.abnamro.nl/en
Bloomberg: ABNM