Bond Crash in the making – next bubble to burst

The weekly BUND (EU government bond future) is building a huge top formation called Head & Shoulder, which is a very powerful pattern once it confirms by breaking the neckline. The magnitude it will drop below the neckline is 25 points counting from 108/9, giving a target of roughly 84/5. The current rally in the right shoulder came from safe haven buying and, as stock markets are stabilizing, Bond markets will start to suffer, especially government bonds since also within bond-markets people will buy corporate bonds and still they offer big bargain levels short-term. It might take another 3-4 weeks, since I expect another test on the downside of the stock markets short-term, which might support the market a bit but the financing of at least $2 tril. is a heavy burden and will be priced in fairly quickly.

Sell any rally between 114 and 116, since even a test of the 110 level is at hand within 2-3 months. Mid 2006 we had a double weekly 13 at hand which was a powerful low earmark but as a matter of fact we traded back to that point 1 year later and could not make a higher high, which indicates a basic weakness confirming the bearish assumptions. For people just investing conservatively, it’s time to get out of any government bonds with maturities longer than 2 years, since further rate cuts will come they are a good investment. Beyond 2 years carries an additional risk going forward as government bonds will not qualify for AAA ratings anymore. Iceland is a warning for similar events on much bigger scale. Basically any bonds with more than 2 years are critical going forward. We will discuss that soon on a survive the depression basis in coming blogs.

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~ by behindthematrix on October 14, 2008.

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