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To Commerzbank, German Bunds Are "Flash Crashing"
As first Bill Gross and then Jeff Gundlach suggest shorting German bonds, so it appears the message has sunk in that at 4.9bps 10 days ago, 10Y Bund yields were the short of a lifetime. Since then they have soared, with a dramatic doubling today from 14bps to over 29bps - the highest yield in 7 weeks. As Commerzbank warns, "a cascade of small events is creating a large splash in a structurally ever-thinner market," which has led to a plunge "similar to US Treasury flash crash of Oct. 15."
Yields are crashing higher...Doubled in a day!
And prices therefore lower...
As Commerzbank's Christoph Rieger, head of fixed-rate strategy, explained,
A cascade of small events is creating a large splash in a structurally ever-thinner market.
Cites among factors behind selloff: bond supply and rate locking; higher German inflation and euro-area M3; bearish risks from FOMC statement
Global monetary easing stoking inflation expectations may be another
Large volumes are going through in futures with stop losses being triggered and few dealers willing or able to take the other side, similar to UST flash crash of Oct. 15
Markets will have to get used to erratic swings, with banks being forced to curtail balance-sheet capacities and central bank interventions undermining trading liquidity
Still sees bearish risks from Fed decision even after today’s correction in bunds
Charts: Bloomberg
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What could possibly go wrong?
Can I borrow at 20 bps?
Small events turn into big events and bigger events turn into disasters. But the CB's are all cum laud graduates of the Wile E. Coyote school of business and economics......
And physics.
A Bond Crash within 6 months.
Yeah and it will, of course, be a 'surprise'.......
Tyler, how about illustrating how these flash "crashes" affect Italian Spanish and French bonds as well?
If we have spreads tightening between say Germany and Spain because of the Bund cratering, then we truly have reached peak insanity.
That is not peak insanity, it is Gross, Gundlach and the Momo chasers looking for a profit in an "liquid market".
Check for kids playing on computers in their parents basements in London!
they are exaggerating, bund traders are not used to VOL
Way too much liquidity chasing intra - day return
"Bill Gross Bond Gundlach Jeff Gundlach M3"
Nice tag lines there Tyler ;-) Vigilantes at the gates?
Flash crash or not the Bund was due for a correction. It has been steadily marching down from a 4 % yield to just 5 pts for the past 5 years it is due for an obvious reversal and it ain't going to be pretty when it does.
Germany can deal with it.
Looking forward to the Italian and Spanish reversal.
Then I'll really be looking forward to the press confrence when Draghi has to explain to the world why 5% on Spanish and Italian bonds are crazy talk but its ok for the Germans.
Exactly why in the hell are Spanish and Italian bonds priced at 1.5 % and the US 10 y is 2.0 %.
The EU is going to be in a world of pain when they start to normalize.
The thing is -- they cannot normalise. It is mathmatically impossible for the Spanish and Italian bonds to trade at their 100 year averages (shoot even 30 year average would bankrupt them).
Thus the EUR as a currency (and methinks the EU as a political union) are completely contingent upon low interest rates. As soon as they spike, watch out below. Any attempt to print Draghibucks to paper this over -- might work, but it would require teh northern European countries to become debt slaves for the benefit of the south.
Imagine he is working out a plea deal to limit the sentence in prison.
Gross and Gundlach are the mosquitoes flying over train tracks that get baumgartnered by the ECB-Fed Freight Express.
if bund futures can't hold 156...gonna be a bund-valanche.
Too soon?
"Global monetary easing stoking inflation expectations may be another"
haha
hasn't produced inflation yet ... nor will it (for reserve currencies)
The EU is the Sick Old Man of Europe.
Gross tried to "short" treasuries a few years ago ... how did that turn out??
Treasury yields "flash crashed" in October.
Bund prices are getting whacked now.
UK 'flash crash' trader to appear in court after failing to make bailhttp://www.theguardian.com/business/2015/apr/28/uk-flash-crash-trader-na...
We cannot get our hands on his software. We would Fuck up the lies.
I don't understand the bond market OR the bund market at ALL.
'Course I don't understand the stock market either, except to know that it is not a market anymore, but a 'market'. Is the bond market like that?
yes.
Thanks!
Call into the (CNBC) suze orman show. Her and the gay counterpart will send you into debt.
I saw a hipster with a hair bun crash his skateboard today. Maybe it's a sign.
is ZH the only blog for which the comments are better than the articles?
http://useconomy.about.com/od/monetarypolicy/f/Who-Owns-US-National-Debt...
The bulk of foreign holdings are by, guess who, central banks or sovereign wealth funds.
http://www.cfr.org/united-states/quarterly-update-foreign-ownership-us-a...
Figures 3&4.
Didn't ZH just have an article about shorting the shit out of German Bonds?
This is just a reminder to me, that it is a big club, and I am not in it. Pork Fried Rice!
Its a long fall to the 101bps of Sep 14. BTP and SPG ylds up about 10% t'day.
http://www.bloomberg.com/quote/GDBR10:IND
I wouldn't exactly call a 3 point price move a "flash crash", that's a 2% price move. The change in yield seems extreme, only because the yield is so low in absolute terms. Granted, nice payday if your short with 100x leverage. But... shouldn't we reserve the hyperbole for something a bit more dramatic.