After some ultimately false signs of a quantum of stability returning to Eurozone govt bond markets yesterday, and with a large concession achieved after the recent sell-off, France (where 10 yr yields have more than doubled to 0.86% since 27 April) and Spain (where 10 yr yields have spiked from 1.30% to 1.85 in the same period) will test demand via auctions today. As the attached graphic highlights, it has been a very torrid week and month for major bond markets, with yield curves steepening sharply, in no small part due to the oil price rally and a consequent sharp rejection of the deflation fears that promulgated the "reach for duration" trade at the start of the year, which now leaves many funds that target duration indices with nowhere to hide as they find themselves in the position of forced sellers as those indices shorten on the rise in bonds yields. As we have also noted previously, VAR risks are also exacerbating the scale of the move, and of course the contagion to equity markets highlights that the 'over valuation' of equity markets was primarily a function of the central bank ZIRP/QE inspired bond bubble.
from Marc Ostwald