That greatest contrarian indicator in the history of finance, Tom Stolper (arguably even better than Dennis Gartman), may no longer be at Goldman but his muppet-crushing spirit lives on. With Bund (and Treasury) yields tumbling to lows not seen since mid 2013, adding insult to injury, and accelerating the short squeeze, here is Goldman's Francesco Garzarelli with "Trade Update: Close Trade recommendation selling short Euro Bund June 14 futures (RXM4), for a potential loss of 2%."
Reflecting our conviction that the ECB was willing to support credit markets more directly and potentially engage in SME CLOs to improve the transmission of monetary policy and counter deflationary risks, on April 3 we recommended selling short Euro Bund June 14 futures (see Global Market Views: Hedging Long EUR Credit with Short Bunds, April 3).This trade was also supported by Bunds’ valuations: based on the macro outlook, 10-year German yields ranked, after Japan’s, as the most expensive across the major markets. Moreover, the trade recommendation served as a hedge for long EUR credit positions.
At the time of opening, we highlighted that the main risk was timing, as the template from other QE experiences was that the long-end of the yield curve performed well ahead of the actual policy decision, to sell off afterwards. But, a combination of negative inflation surprises, a stronger EUR and a slower ECB response to these dynamics have coalesced to flatten the yield curve. Inflows into the Euro area as the Ukrainian crisis intensified and short-covering extended the bullish price action.
We opened the trade recommendation at 142.91, with a stop on a close above 145.5. Given yesterday’s closing values, we close the position for a potential loss of 2% since inception. We find that German Bunds are even more mis-priced than before and, barring a change in the economic picture, we will be looking for opportunities to reinstate the risk.
Well as long as we all agree that the market is broken...
Yet considering it was just over two weeks ago that "Goldman Sachs Strongly Suggests Clients Sell Them Their Treasury Bonds [9]", it makes sense that this may well be the bottom for Bunds.
Meanwhile...
