Rates Strategy: Still long but...

10y UST and Bund futures remain guided by their medium-term upward trends. However, momentum has weakened and especially 10y UST futures have corrected considerably over the past two weeks. Bund futures have held up better which should be seen in light of the Greek woes. Overall, I maintain my tactic long stance for the time being but see increasing risks of a trend break.
Risks to the positive tactical stance are increasing. First, positioning in US futures has moved from a short base to neutral over the past weeks even though markets have corrected weaker. Additionally, so far equities and commodities have remained within their upside trends following a test towards the end of last week. I still think that commodities should be headed lower - which would help government bonds - but clearly from a technical perspective the upward trend running at currently 268.5 in the CRB index needs to be broken on a closing basis for the near-term outlook to turn negative.
Most importantly and as I have written last week (see Watch out for a rebound in seasonally adjusted economic data during winter), the winter months are likely to see a more positive fundamental backdrop even if only largely due to seasonal adjustments which overplay the usual economic downturn. This temporarily better economic backdrop in combination with reduced short positions risk becoming a significant headwind for government bonds over the next weeks. To be sure, I remain of the opinion that growth will remain subdued over the medium term amid a lack of a self-sustaining economic dynamic as well as lower trend growth. Furthermore, I still do not see rising inflation pressures to be on the horizon over the forseeable future (i.e. 1-2 years) in the US or the Eurozone. This should help government bonds to remain at historically low levels over the longer term.
For the time being and given that the upward trend in the Bund future remains intact (currently running at around 121.63), I stick with a bond-bullish tactical outlook but see rising risks of a temporary but potentially significant setback on the horizon.