Article / 06 October 2016 at 12:30 GMT

Bonds on the wane?

Technical Analyst / FuturesTechs
United Kingdom
  • Very low bond yields are worrying for many
  • Bond prices are heading lower
  • Let's have a look at a few charts to speculate about future developments
By Clive Lambert

One of the biggest worries of recent years for me has been the continued strength of  (developed) bond markets, which has driven yields down to record low levels, below zero in many cases. 

It has long been a mantra in bond traders circles "I must never sell bunds" (Think Bart Simpson doing his lines on the blackboard).

Only last week Bund Futures made a new all time high (referencing the adjusted continuation charts). Since then we've posted some red; posting what the Japanese call a "Three Black Crows" formation: Three back (red using the colour scheme mostly favoured these days) candles in a row. This is bearish... in fact yesterday was number four, and although we're seeing some green today we're already seeing evidence of sellers re-emerging on these gains.

So whisper it (you don't want people giving you funny looks!) but bond prices are heading lower, at least for now.

Obviously the "fundamentals" behind this are central banks making some tentative noises about tapering QE.

For now I'm treating this as healthy retracement, but some markets (10 Year Notes in the US immedaitely springs to mind) are getting close to some important support levels, and if/when these start to break things could take on fresh momentum.

We shall keep an eye on this situation. For now here's a market-by-market guide to the key levels we need to be watching out for.

Bund Futures (Dec 16):

164.14 was yesterday's low.
163.06 is a short term Fibonacci support.
162.56 is the mid September low/bounce.
161.87 is the bottom of the "Brexit day" gap

Daily Chart:
Bund Daily
Source: CQG 

Long Gilt Futures (Dec '16)

129.40 was yesterday's low
127.87-92 is the next support of note below here being the Neckline of a potential "Head and Shoulders" topping formation and the recent low from mid September
127.19 is a Fibonacci support below that.

Daily Chart:
Gilt Futures
Source: CQG 

T-Notes (US 10 Years, again Dec '16, quoted in 32nds):

130.03 was yesterday's low
129.23-26 is a Fibonacci support level where we've already seen one bounce in mid September.
127.18 is the next support of note below here...

Daily Chart:
Source: CQG 

— Edited by Clemens Bomsdorf

Clive Lambert is chief technical analyst at FuturesTechs

Clive Lambert - FuturesTechs Clive Lambert - FuturesTechs
UPDATE: Since I wrote this we HAVE seen further downside in Bond markets generally and we are testing some of those more iomportant support levels that I'd mentioned in the piece.

Bund Futures have been as low as 164.19 today so are getting geared up to test 164.06 and 162.56. We have important resistance at 163.95 and we failed here on yesterday's rally.

Gilt Futures broke that Neckline at 127.95 and is now testing 127.19. Below here 125.74 and 124.35-55 are the next targets of note.

And in the US the 10 Year T-Note is testing it's key support at 129.23-26 today, currently just below here as day session trade kicks into life.

All looking lower in the short term, then, especially if T-Notes don't retake 129.23-26 today.


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