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11 May 2015
Is the meltdown in German bunds over? – BBH
FXStreet (Barcelona) - The Brown Brothers Harriman team explain that the bunds sell-off has stabilised, and further comment that there is more to the meltdown in German bunds than positioning and easing deflationary pressures.
Key Quotes
“There has been what appears to be a flash crash of sorts in the German bund market that has had knock-on effects throughout debt markets, equities and currencies. The 10-year bund yield slipped below 5 bp on April 17, and the 30-year yield eased below 44 bp. At their peaks last week, the 10-year yield reached almost 78 bp and the 30-year pushed above 1.40%.”
“Deflationary pressures have eased recently and may account for some of the backing up of yields. Market positioning was also extreme as many were anticipating a fall into negative territory due to a shortage of bunds for investment and collateral purposes.”
“However, the magnitude of the move, and ripple effects through the capital markets, suggests something more may be taking place. Increasingly, market participants are discussing the decline in liquidity, not volume. In this context, liquidity is about the size of a transaction that moves the market.”
“Precisely what is taking place is not clear. It does seem to reflect changes in the micro-structure of markets, the role of officials directly, through asset purchases, and indirectly through regulation. US Treasuries, Japanese government bonds, and now German bunds have all experienced similar situations. More work needs to be done in this space.”
Key Quotes
“There has been what appears to be a flash crash of sorts in the German bund market that has had knock-on effects throughout debt markets, equities and currencies. The 10-year bund yield slipped below 5 bp on April 17, and the 30-year yield eased below 44 bp. At their peaks last week, the 10-year yield reached almost 78 bp and the 30-year pushed above 1.40%.”
“Deflationary pressures have eased recently and may account for some of the backing up of yields. Market positioning was also extreme as many were anticipating a fall into negative territory due to a shortage of bunds for investment and collateral purposes.”
“However, the magnitude of the move, and ripple effects through the capital markets, suggests something more may be taking place. Increasingly, market participants are discussing the decline in liquidity, not volume. In this context, liquidity is about the size of a transaction that moves the market.”
“Precisely what is taking place is not clear. It does seem to reflect changes in the micro-structure of markets, the role of officials directly, through asset purchases, and indirectly through regulation. US Treasuries, Japanese government bonds, and now German bunds have all experienced similar situations. More work needs to be done in this space.”