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What Wall Street Thinks Caused The Bund Rout

Tyler Durden's picture




 

The key feature of the past two days was neither the disappointing US GDP report, nor Japan's failure to boost QE, nor the Fed's muddled, confused statement but the huge rout in German "short of a lifetime" Bunds on close to record volume.

What caused it?

As Bloomberg summarizes the various opinions suggested by Wall Street analysts, the rout in German debt and other European sovereign bonds was caused by market-technical factors such as investor positioning and supply glut rather than shift in views on economic outlook, analysts say, with profit-taking on successful QE trades, thin market liquidity and position-squaring before month-end are cited among main bearish catalysts.

A detailed breakdown by firm:

UBS (Mike Schumacher, Nishay Patel)

  • Spike in bund and UST yields over past two wks bolsters confidence in bearish call
  • Favor positioning for higher yields via France 5/10 steepeners and by paying EUR 5Y/5Y swaps
  • Weakness largely driven by technical factors, such as positioning, not fundamentals

Allianz Global Investors (Mauro Vittorangeli)

  • This isn’t start of bear market in bonds or developments that would persuade ECB to mull tapering QE early
  • Price action is more related to S/T supply and demand factors, as investors take profits and unwind ECB trades

RBS (Giles Gale)

  • Maintain L/T positive stance on German 10Y debt even after selloff
  • Weakness probably isn’t start of root-and-branch reappraisal of desired positioning and fundamentals; technical correction is the more likely explanation
  • Still see 10Y yields dropping to -0.13% on inflation, QE and now-cleaner positioning

RBC Capital Markets (Peter Schaffrik)

  • While no single driver for rout, position-squaring likely played a big role; “all that had gone up went down yesterday”
  • Good chance of more such moves in future; bond mkts have already taken a lot of bad news into account
  • Too early to favor outright shorts given Greek woes and tepid U.S. data
  • Prefer “semi-shorts,” such as B/E wideners, and U.S. 5/10 steepeners, U.K. 5/30 steepeners and short-end longs in spread products in euro area

Citigroup (Harvinder Sian)

  • While uncovered bobl auction isn’t necessarily a signal, progressively weak sales could point to changing investor behavior
  • Anecdotal evidence suggests some buying on dips and little by way of significant selling flows

HSBC (Bert Lourenco)

  • Yday’s rout in euro-area govt bonds was probably driven in part by “technical momentum players” amid supply glut
  • Stays constructive on EUR rates over longer term on inflation outlook, QE
  • Commerzbank (Christoph Rieger)
  • Cascade of small events created a large splash in a structurally ever-thinner mkt, similar to UST flash crash of Oct. 15
  • Test of zero line for 10Y yields should have been averted for now, with price bounces being used to reduce duration risk

In short, "more sellers than buyers"

Source: BBG

 

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Thu, 04/30/2015 - 08:02 | 6046327 junction
junction's picture

I would like one of those high paying jobs explaining why the stock markets go up and down.

Thu, 04/30/2015 - 08:05 | 6046335 R19
R19's picture

Me too.  Half of my office would be a Japanese zen sand and rock garden that I could double as a putting and chipping green.

Thu, 04/30/2015 - 08:32 | 6046395 ml8ml8
ml8ml8's picture

Do sovereign bond "fundamentals" include the ECB's distortion of prices with QE?  Or is that "technical?" 

Thu, 04/30/2015 - 08:12 | 6046354 Hype Alert
Hype Alert's picture

"investor positioning and supply glut rather than shift in views on economic outlook"  WTF?

 

So, the end is near, they're repositioning by selling thus causing a glut?  lol

Thu, 04/30/2015 - 08:04 | 6046332 R19
R19's picture

Flash crash - lol.

Thu, 04/30/2015 - 08:07 | 6046341 Bill of Rights
Bill of Rights's picture
Options trader bets millions on speedy gold spike

http://www.cnbc.com/id/102628910

Thu, 04/30/2015 - 08:08 | 6046344 4shzl
4shzl's picture

VIGILANTES, baby -- they're baaaack!

Thu, 04/30/2015 - 08:30 | 6046392 MidwestJester
MidwestJester's picture

What Wall Street Thinks Caused the Bund Rout aka The Latest Steaming Pile of Shit Shoveled from the Mouths of imbeciles

Thu, 04/30/2015 - 08:39 | 6046410 Ward cleaver
Ward cleaver's picture

Yeah, this has nothing to do with a group of oligarchs colluding to push the bund prices down. Bill Gross comment was simply the starters gun going off.

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