FxWirePro Call review: Maintain short positions in 10-year bund

This is yet another review of our previous call, given out in October last year to short the 10-year bund at the breakout of 162.5 with an initial target of 160 and 159 area and subsequent longer-term target of 153. The article is available here, http://www.econotimes.com/FxWirePro-10-year-bund-heads-for-a-sell-breakout-367667

In a subsequent article, we have reaffirmed our outlook and also shared our forecast that the spread between the 2-year bund and the 10-year bund would widen over time. That review is available here, http://www.econotimes.com/FxWirePro-Keep-riding-the-bund-short-call-review-397028 . In addition to that, In January, we had called on our readers to go short in 10-year bund and long the German benchmark stock index around 11560.

In our review on 28th February, we warned our readers that our short call in bund is under threat due to election uncertainties in Europe and warned that it might break the stop loss around 168 if the Dutch election turns out in the favour right-wing candidate Geert Wilders. However, that has not happened and thankfully we maintained the stop loss. The 10-year bund reversed course after reaching as high as 166.3

Since our last review back in September, the 10-year bund has traded within a small range and is currently hovering in the middle of a declining range, as can be seen in the chart.

Why write the review, if nothing has changed?

Nothing has changed from a price point of view but a lot has changed fundamentally. Yesterday, the European Central Bank (ECB) announced a further tapering of its current asset purchase program but extended it beyond market expectation. The ECB statement says, “As regards non-standard monetary policy measures, purchases under the asset purchase programme (APP) will continue at the current monthly pace of €60 billion until the end of December 2017. From January 2018 the net asset purchases are intended to continue at a monthly pace of €30 billion until the end of September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.”

It is interesting to note, while the euro declined sharply after ECB decision, there was no major movement in the 10-year bund, which should have gone up (price) as ECB was dovish. It hints that the market is not ready to gobble up the 10-year bund. However, it seems that it would take a much longer to reach our target around 153.