10-Year Government Bond Futures Review: Developing Tops
Comment of the Day

September 12 2012

Commentary by David Fuller

10-Year Government Bond Futures Review: Developing Tops

David Fuller's view I last wrote about the similarity of these patterns on 14th August, although they are mentioned nightly in the Subscriber's Audio. Eoin last reviewed the corresponding yields on 20th August. Given the importance of these instruments following a bull market of approximately 30 years, another update is warranted.

Commonality remains the most salient feature of these charts for US 10-year Treasury futures (weekly & daily), German Bunds (weekly & daily), UK Gilts (weekly & daily) (large gap created by coupon change in November 2011), Swiss (weekly & daily), Australian (weekly & daily), Canadian (weekly & daily) and JGBs (weekly & daily).

All peaked in July, except for Swiss bonds which moved slightly higher in August. All have now established a pattern of at least one lower reaction high, a characteristic of developing downtrends. All have now returned to areas of potential support from the upper side of former trading ranges and also the 200-day moving averages. If the 30-year bull market is still alive, although this is not indicated at present, they would need to rally from current levels and break the progressions of lower rally highs.

The bond future leading this decline at present, and therefore the one to watch most closely, is the German Bund. It has already pushed beneath its MA and into the prior trading range. UK Gilts have also edged beneath their MA but the chart is distorted by last year's coupon reduction.

We think that these so-called "safe haven" government bonds are the most significant remaining bubble worldwide. However, QE in its various forms from the US Federal Reserve, Bank of England and European Central Bank may lead to an extended phase of top formation development. Nevertheless, the medium to longer-term outlook, in our view, is for lower bond futures prices and correspondingly higher yields

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