Thirty-year yields now sit just five basis points shy of their 100-day moving average, and a breach could prompt a renewed wave selling. Curve positioning may also fuel liquidation in the long end as traders start to unwind overcrowded flattener trades. The spread between five- and 30-year yields is hovering near 95 basis points, near the narrowest since 2007.
Thursday’s rout began in Europe after the results of a French debt auction showed a drop in excess demand for 30-year securities. Trading volumes in bund futures contracts jumped after the auction results were announced, sparking a surge in yields. The move gathered momentum as the yield rose above 0.51 percent, which Citigroup highlighted as “strong support.”
Technically “the dam broke” in German 10-year bunds and “the cascade quickly flooded sell orders into 10-year futures, with the biggest ‘emergency’ overnight volume in months,” Jim Vogel, a strategist at FTN Financial Capital Markets, said in a Thursday note to clients.
This article was provided by Bloomberg News.