Article / 08 June 2016 at 11:59 GMT

Weekly Bond Update: 10-year bund flirts with zero

Head of Fixed Income Trading / Saxo Bank
  • German 10-year yield as low as 0.04%
  • Large fund positioning versus a potential Brexit 
  • Punds and asset managers continue buying
 Bunds gain from a flight to safety ahead of the Brexit vote. Photo: iStock

By Simon Fasdal

The recent rally in European core bonds has sent bunds rocketting into the stratosphere with yields now approaching 0%. This morning the 10-year German yield traded as low as 0.04%.

Our view is that this represents large fund positioning versus a potential Brexit disaster, so despite extremely stretched levels, pension funds and asset managers continue buying to preserve capital in the event of an all out risk-off mode. Allocating portfolios into stocks/bonds combos has been the trade of the year as many bond classes now have high single digit returns compared to a sluggish equity environment.

However the latest move in bonds also calls for an opportunity to establish shorts because should the UK referendum end with a decision to remain in the EU we would see a massive unwinding in bunds. 

– Edited by Clare MacCarthy


Simon Fasdal is head of fixed income trading at Saxo Bank


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