Bond Technical Strategy – Weekly by Lloyds TSB

A developing theme from Q4 2008 was the prospect for commodity prices to rally in 2009 and put pressure on the bond markets. This, coupled the relatively positive performance from emerging market equities, could continue to create competition for bonds this year.

A developing theme from Q4 2008 was the prospect for commodity prices to rally in 2009 and put pressure on the bond markets. This, coupled the relatively positive performance from emerging market equities, could continue to create competition for bonds this year. It has been expected that the pressure would be seen first in the US long bond and the chart below highlights the recent volatility.

However, this price action is close to completing a major reversal
pattern and a break of 131.23 would signal a move to 120.00 intially.
As pressure increases across the curve in core bonds, it is clear that gilts are taking the brunt of negative investor sentiment and whilst it could be argued this is an isolated scenario, the expectation is that further pressure will emerge on bunds and 10 year US notes, rather than a rebound in gilts.

The implications of this are that swaps have hit a floor. Whether this is temporary will remain to be seen, but for the moment the long end pressure will be monitored closely this week for signs of acceleration, particularly with equities hovering close to significant support levels..

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