Friday, August 3, 2012

Today's Major Market Move: 4 Year German Bond Yield Surges 12 Basis Points in Today's Session

Lately we've been keeping an eye on the German 4 year, expecting it to be the next sovereign bond yield to fall into negative territory. The day of that eventuality was pushed back by today's action as the 4 year yield went from .07 to .19. We saw "eventuality" since we feel confident it will happen based off of recent action. We put very little credence in technical analysis but the chart shows a fairly consistent declining trend and it at these levels, it should only take one or two significantly negative economic developments, in either Europe or the U.S., to push it below zero.

Click here to go to the live chart.

The yield recently got as low as .04 and at the beginning of July it plummeted more than 20 basis points in the span of a week. So the zero level remains well within striking range and it may take less than a month to get there.

While many German and UK sovereign bond durations were being sold off hard, equities, particularly European equity indexes, were having a banner day. Here's the top 10 top performing benchmark equity indexes in today's session:

Click here to go to the live table.
And here's the primary reason for all of this "risk-on" activity (courtesy of the FT):
Stock markets rallied sharply on Friday as Spain responded to a conditional offer of intervention from the European Central Bank by signalling it would consider seeking a sovereign bailout. 
European and US equities gained while the borrowing costs of Spain and Italy fell. Those “exceptionally high” bond yields had prompted the ECB to say on Thursday it was devising a plan to buy bonds – but only if the affected countries applied to Europe’s rescue funds first.
Our friends at the ECB are back making waves however we would suggest that they be judicious with their tape-bombs, what with brent well over the $100 level and in the midst of an upward trend:

Click here to go to the live chart.

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