“They Are Sleepwalking Into A Major Correction”: One Trader Expects A Violent Move In Bunds
by Tyler Durden
ZeroHedge.com
Dec 19, 2017
With many expecting long-yield to continue declining no matter what, and how many hikes, the Fed and central banks do on the short end, Tommi Utoslahti, a former derivatives trader and analyst and currently one of Bloomberg’s Global Macro squawkers, disagrees and as he writes in his latest Markets Live note below, expects a violent repricing in European rates, and especially the Bund market, where “Investors have become so blinded by QE-suppressed ultra-low yields that they risk sleepwalking into a major correction even as most hard indicators scream for heightened alertness.” Of course, the ECB is to blame for this:
“The ECB’s capital-key requirement, combined with documented early overbuying in the most liquid euro-zone nations’ bond markets, resulted in the central bank accumulating almost 450 billion euros of German debt by end- November 2017. For that reason alone, German yields remain artificially low, with the curve negative all the way out to seven years. That’s not sustainable.”
The current 10-year yield around 0.3% is ridiculously out of whack with economic reality. Investors have become so blinded by QE-suppressed ultra-low yields that they risk sleepwalking into a major correction even as most hard indicators scream for heightened alertness.
The resulting risk: another April 2015 VaR shock event: “As Frankfurt winds down its red-hot printing presses, German economic fundamentals argue for significantly higher bund yields. What everyone from the ECB to the trading floor will want to avoid is a replay of April 2015, when yields went from 0.08% to 0.98% in just seven weeks.”
The Rest…HERE
