Hi leinster, good thread, what makes you think yields should converge closer to US? There are other country examples of yields further declining, Japan for example. And quite a few European countries with negative interest rates at the short end.
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1.) Firstly i dont believe negative yields as been possible for a prolonged period excluding japan which is in a very bad state.
2.) I believe the rise of the far right political parties throughout europe has effectively given mandate to the central bank to crush the recession with some gentle inflation and devaluing of the currency been 1 way to promote growth and jobs. The old guard like the way it is and want to stay in power they do not want 30% of the countries of europe deciding on a greek style government.
3.) Yields have never been so low and with the weak euro is seriously boosting german sales.
4.) I cannot see yields staying where they are as the market is pricing europe to be 4 years behind the states a better bet is probably around 2 years.
5.) Who wants to own a bond to protect against default when it looks as though the money supply of europe is increasing which means your money should be put to work.
6.) The risk is the bond stays negative and goes further negative for this end i think its clear the stop loss is somewhere way out there and very well defined. I believe its nearly a 1 way bet.
7.) There is some style of inflation out there in europe and i think the ecb purchases will help the periphery from now on and not the centre (bund).
8.) I think downside is not as much as people think and with the right instrument a killing is to be made. I wanted to show the instrument i was using to maybe kill this if anyone has any others let me know.
Id be all in on this with as much cash as possible but i have been recently tapped up by the tax man.
I do believe history turns full circle and i dont think its as bad as people say it is in europe cheap rates forces people to spend on big ticket items!
At the height of QE in states the 10 year was 1.7 or so thats 1.7 above where german bond yields are.
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X0cw closed @2'10 on Friday. Anxiously wishing the Greek situation gives a knockon to the markets so I can double my position by end of the month. I'd be looking to buy @1'50 / 1'60. During day period I have started to take positions both ways on the underlying GBL no holds overnight but so far trades have accounted for 25% of the profit when compared against x0cw. Any futures profit is going towards the x0cw position.