Rush towards sovereign bonds is likely to keep continuing in anticipation of continued easy monetary policies from the central banks around the world. Even, U.S. Federal Reserve, the only major hawk in the game is still hesitating to hike rates. Even if they do, once this year, the current path is much softer than anticipated by the FOMC policymakers at the beginning of the year. Another former hawk, the Bank of England (BoE) reversed course and extended its monetary policy easing which began almost seven years back.
Germany’s position as the strongest country in the whole European Monetary Union (EMU) likely to keep bund well bid. Recent turmoil, with regard to Brexit, there seems to be just one mantra in the market - “buy bund”. Trouble surfacing with periphery - “buy bund”. Portugal is about to lose its investment grade status - “buy bund”.
While many investors and economists have started warning of a bubble in the sovereign bond market, we believe even then the bund has the potential to move higher in the near term, especially with Eurozone inflation hovering at just 0.2 percent.
Trade idea:
Buy bund at the current price of 167.3 and at dips with a stop loss around 165.5 area and target around 171.7 area.
