08 June 2016 at 11:59 GMT
- 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