Bond Technical Strategy – Weekly by Lloyds TSB

With sentiment remaining fragile and volatility at historic levels, continued turbulence in the financial markets looks likely over the coming weeks.

With sentiment remaining fragile and volatility at historic levels, continued turbulence in the financial markets looks likely over the coming weeks. However, in the previous bond weekly, we discussed the prospects for a reversal in the long end of the US bond market. Whilst timing is key, this remains an important juncture for the long end of the curve. Recent events have clearly elevated the risk of a steepening of the curve.

Whilst the long term expectation for equities remains bearish (in the short term we could be near a significant low), potential over the coming months is for increasing core long end yields. In Japan this could be for the right reasons (as seen by the continuing strength of the yen) but in the core markets, and particularly US, this is for the wrong reasons, and will become a problem for the dollar going foward. It implies gold should remain in favour and we could be close to a significant trend change (upward) in soft commodities.

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