Video

Peter Garnry
After the Italian referendum, investors are worried about the policy trajectory for the Italian banking system. Saxo Bank head of equity strategy Peter Garnry, however, believes that Italian banks will pull through.
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:
T-Notes
Source: CQG 

— Edited by Clemens Bomsdorf


Clive Lambert is chief technical analyst at FuturesTechs



12 October
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.
Relevant articles for you

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail