Bond Pressure

They are shooting at the bondholders.  The sharks are out in the water, looking for anyone long government bonds, it doesn't matter the country.  We are in the heart of the bond panic.  Yes, it can get worse, but most of the damage has been done.  The weakness in the Bunds, where yields got up as high as 106 bps and the coming supply of the 10-yr and 30-yr auctions today and tomorrow are building in a concession quickly before the auctions.

In bond land, the weak hands are out, the medium hands are half in/half out, and the strong hands remain in bonds.  It is a process that happens over a couple of months, you get a big rise in bond yields, and then the market stabilizes at a higher yield level, and waits for the next move, which is usually back to the long term trend, which is down for bond yields.  I am bullish on bonds at these levels, as 2.47% 10 yr yield is an area of support, with 2.50% and 2.58% acting as more minor support.  After the auctions dust settles, we should see lower yields.

The S&P and the global equity markets are trading separately, as Europe continues to underperform the US.  As I said in the past, the hot money flows, currency hedged (shorting euros and buying European equities), are acting as a double whammy as European equities go down while the euro gets stronger, the worst of both worlds for the currency hedged European equity buyer.  I expect to see European underperformance continue, because the investor community is still overweight Europe despite better fundamentals and supply demand dynamics in the US.