Long term Bonds sell off

In a very volatile day, Bunds sold off over 140 points, as it tested february support of 120.50.


As risk appetite continues to enter the market government bonds continue to sell off. Spreads across the board have been marching higher, with Schatz - Bund spreads breaking new highs, Euribor spreads moving up 2 to 3 ticks in each 3 month spread, as well as short sterling. It was a painful lesson for those who were trying to short the spread on the move up, as many got hit including myself. It is just common practice that we trade the spread to revert back to the mean, and despite knowing better we tend to short new highs assuming small pullbacks which did not materialise. The move in spreads on short sterling have been the most aggressive with the 6 month jun10 sep 10 spread trading at 77 BP!
It is clear that market participates anticipate early recovery and a pick up of rates sooner rather then later.
Stress test results released yesterday pretty much confirmed all the rumours and has removed alot of uncertainty surrounding these banks. In turn many are showing double digit gains premarket, after being hit by profit taking yesterday after a poor auction take up. The reversal in equities yesterday in my opinion was merely a blip on its march upwards as the path of least resistance still seems up unless we have a very bad Job number today.
Risk is returning and for now its here to stay.