- New Science in old markets -

Bunds are compressing – a new move is coming

German Bunds have benefitted the most out of all the Europeans from the surge of government bond buying in recent years that has been provoked by the combination of fear and QE. The consequent rise in prices/fall in yields ended last June with a pair of monthly-scale top extensions which occurred just as commentators were pointing out that all maturities up to the ten-year were yielding zero or less:

Bund monthly top exts

There were other top extensions along the way, as is normal in a long-running bull move and it may well be that this too will mark just another pause or dip before new highs are achieved. We would also expect to see such signals at the actual high point of the move however, so we must be alert for the end of the trend.

We have just seen a weekly-scale compression signal:

Bund weekly comp

Bull markets typically end with some 'churning' at the highs as the price 'builds a top' and then after some time a weekly or monthly scale compression forms. This then breaks downward to signal the start of the subsequent bear market. So far we only have the first step - this weekly compression - and we will wait to see if it breaks downward.

We have already taken a bearish view of US bonds, so it would be logical to expect that this signal will break downward and so also provide a bearish view of the Bund. We have found it useful to wait until any compression makes a confirmed break before taking a firm view and so now we just wait.

All signals generated by software supplied by our friends at Parallax Financial Research www.pfr.com