The Outlook for Government Bonds

Focus: BONDS

Eoin Treacy Image Eoin Treacy Global Strategist,

We may see a steadiness return to the sovereign debt market, says Eoin Treacy of Fullermoney.

If we accept that the largest bull markets inevitably give way to large bear markets and vice versa, it is inevitable that at some point government bonds will be the most risky asset, despite the fact prices have been going up for a long time. Since government bonds are an important asset class, I thought it would be timely to review some of the larger markets on an absolute and total return basis.

At the beginning of January, the US ten-year yield pushed back above the 200-day MA for the first time since April 2011, and has since rallied above 2%. A sustained move below 1.8% would be required to question current scope for continued higher to lateral ranging. If the more than 30-year bull market is to remain consistent, it will need to find support and sustain a rally back above the MA.

The German ten-year yield has rallied to test the upper side of its six-month range, and while somewhat overbought in the very short term, a clear downward dynamic will be required to signal a return to demand dominance.

UK ten-year yields hit a medium-term low between June and August 2012, ranged above 1.68% from September, and broke upward once more in January. The rate found support near 2% three weeks ago and a sustained move below 1.95% would be required to question medium-term scope for continued higher to lateral ranging.

The Japanese ten-year yield lost downward momentum from July and posted a higher reaction low for the first time since April 2011, three weeks ago.