The correction in Bond markets as well as the recovery in risky assets is now well underway. Technicals have all turned relative to June's development as the upward trends in government bond futures have been broken to the downside and the downward trends in equity markets to the upside. Favorable Q2 earnings reports, the ongoing stabilisation in economic growth as well as firming expectations for positive growth during Q3 in the US provide the fundamental backdrop. I do not propose to stand in the way of this train. I maintain the view that 120 should provide a good support area - and entry area for potential longs - in the Bund future during this correction period which is likely to last another 1-2 weeks.
I have been looking for a consolidation in government bond prices since last week (see here) and also suggested that risky assets might recover again (see here) and the development in govies is so far playing out as expected. Also the recovery in commodity prices is in line with my expectations. As the chart shows, the CRB-Index has only moved moderately higher during the past days.
Therefore, I reiterate that I maintain my defensive asset allocation stance from a more medium-term strategic perspective but would reduce risk temporarily on all fronts.