Thursday, August 3, 2017

Bonds: the most attractive market today

Undoubtedly, for a trader, the most attractive market to follow since June is the primary one, of fixed income or debt issuance. Thus, today in Europe, a weak auction of French bonds deepened the fall in the price of these, raising its yield 10 points. The same happened in Germany (9 points), the United Kingdom and Spain. The Bund, a 10-year German bond, the European benchmark for this market, comes with its yield up more than a week ago, reaching its maximum in 18 months, this since Draghi made his hawkish comment on European bonds.

The truth is that it is already necessary for the health of the European market that this immense debt be deflated, I had already commented it months ago here, but the disaster can take on epic dimensions. After seeing his ambiguous minutes today, it remains the feeling that the ECB does not have total control of the situation ... very dangerous.

In the US, by contagion, its counterpart TNX follows the same bull path. We will see what happens tomorrow with the official data of Employment Situation, because the returns tend to react abruptly with this data, although the market already assumes that the US is in the phase of 'full employment', as it says the very low unemployment rate 4.3 % of last month. Also look at the now important average hourly earnings data, which moves inflation, is expected 0.2%.


 If you follow this blog, and did trading (via TLT or TMV) when we notified the upward trend in TNX (two weeks ago at 2.19%, today at 2.37%), tomorrow may be a day to collect benefits, prior to the data. Even more so considering that today's ADP private employment data, which is generally aligned with that of tomorrow's employment, was quite weak.


After breaking the multi-year trendline in November 2016 (Trump effect), the TNX rate
 has been recovering strongly towards its next resistance by 2.6%. Tomorrow the 
employment data will be key.

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