- What's a Bund and why does it matter? (Hint: the benchmark for European bond markets)
- Bunds and Treasuries threatening to
bounce to high side of range - What is the range? (Hint: 1.72-1.80, with a 1.755 midpoint)
- Does data matter? (Hint: not today)
- How about oil? stocks? (Hint: it
depends ...) - YES, MBS ROLLED (prices are 7/32nds weaker than they otherwise would be)
What's in a name? A Bund by any other name would be far less hilarious to English speakers, but it would still smell like the European bond market.
It's the same story for Bunds in Europe. Germany is, by far, the largest economic component of the EU, and Germany's 10yr Bund serves a similar representative role for the broader European bond market.
There are multiple reasons for these 10yr maturities to be where they are today, but most of those reasons lead back to the very basic notion of risk vs return. The decision to invest in bonds is an inherent choice to avoid risk or to bet against growth. At the very least, it's a hedge against potential economic weakness. Sure, we can say that the European Central Bank is actively buying European bonds, therefore bringing the yields even lower, but why are they buying them again? Oh right! Because of economic growth problems! It all leads back to growth and risk.
Recently, German Bunds have been operating near all-time lows. In a globally interconnected market, when Bund yields are as depressed as they have been, US bond markets can't help but benefit. It's worth noting that Bunds have thus far failed to break all-time
Oil and stocks are only going to have a big effect right now if they happen to move in a major way. As the chart shows, oil has had a pretty big bounce of late, and bond markets haven't given
On a final note, Fannie and Freddie 30yr fixed MBS officially rolled to May coupons with the start of today's trading. That makes prices look 7/32nds lower than they did