Shorts Gaining Ground As German Bund Falls Ahead Of U.K Referendum

Germany’s 10-year bund, Europe’s benchmark sovereign security, fell for a fourth day to 164.46 after the release of some recent opinion polls reporting an overwhelming lead for the “Remain” campaign.

Bonds are considered as safe-havens, since they provide consistent income due to their periodic coupon payments and defaults are rare. When the global economy is unstable, investors tend to move towards bond in order to park their cash.

A survey of 800 participants conducted by ORB for the Daily Telegraph had the “Remain” camp in the lead with 53% of the votes and the “Leave” camp at 46%. More importantly, the poll showed that the proportion of Remain supporters who say they will definitely vote jumped to 69%, compared with 54% two weeks ago. Meanwhile, the figure for the Leave camp fell to 64%, from the statistics of 69%.

Additionally, the remain camp has also received fresh support from top business executives as well as Nobel-prize winning economists. On Sunday (19/6), in an open letter to the Guardian, ten of the world’s leading economists expressed their opposition to Britain leaving the EU. After the publishing of these polls,  the anxiety over a possible British exit from the European Union eased, which diminished investor appetite for safe-haven currencies and led to a selloff in government bonds.

Moreover, the European Central Bank and Bank of Japan continue to buy back bonds and high-grade debt usually purchased by private sector investors. This could put more downward pressure on bond yields and drive the investors away from bonds, including Germany’s 10-year bunds, as the returns on these assets decline.


Fig. Germany 10-year Bond D1 Technical Chart

On the hourly chart, the price is in a four-day downtrend, currently trading at 164.46. The price has broken through the recent sideways price range. It is still moving around the 164.39 pivot. The parabolic SAR has changed its direction as the parabolics band has crossed above the price chart, suggesting a bearish market to come. The bonds are anticipated to dim further.

Trade suggestion

Sell stop at 164.15, Take profit at 163.55, Stop loss at 164.95




Leave a Reply

Your email address will not be published. Required fields are marked *