First, the technical picture has improved further vs. last week. The adjusted Bund future contract was able to trade to a new high on Friday. The previous high in the roll-adjusted contract was reached on March 9 at 123.57 according to Bloomberg (in unadjusted terms the March 2009 Bund future reached its high on January 15 at 126.53). This is a very positive medium-term signal as it suggests that the bull-trend which started in July 2008 remains intact and the sell-off in spring this year was merely a temporary counter-movement and not the start of a bear market!
Bund future remains in longer-term bull trend
Overall, bond futures continue to emit bullish signal with the only caveat that they start to look overbought. On the other side, 10y yield charts remain a bit less bullish as both 10y UST and 10y Bund yields continue to trade above the record lows reached early in the year and also above the early October lows. In the case of the 10y Bund yield, the current level of 3.15% compares to an early October low of 3.093%. In turn this would leave the picture neutral. Still, if we look at the underlying bonds (the early October lows were reached with the old Bund benchmark the Jul09 vs. the current benchmark Jan20), then the picture becomes bullish as well. The Bund Jul19 traded down to a yield of 3.054% on Friday, i.e. clearly below its early October lows. Furthermore, shorter-dated yields provide also a more bond-bullish technical picture, especially in the US as 2y UST yields have traded down to 0.67%, i.e. almost back to the all-time lows reached last December at 0.649%.
10y Bund yields break below 3.20-3.40% range but remains above early October lows
Overall, therefore I maintain my tactical bullish outlook and look for flatter yield curves. However, in light of the expensiveness of 10y Bunds, I would not add to positions anymore at present levels.