So earlier, yields on JGB 10s rose above 0.10% for first time since February 15.
That’s obviously notable for all kinds of reasons, not the least of which is that it shows upward pressure on global DM yields is starting to test the BoJ’s YCC. You can read more on that here.
Well later in the session, bund yields spiked. And in the context of last week’s doubling and the attendant “tantrum” fears, that’s not what you want to hear.
Apparently, the catalyst was lackluster demand at a French 30Y auction which saw a bid-cover ratio of 1.53, down notably from 1.93 at the previous sale back in January.
To put it colloquially, shit hit the fan after that.
Bund futs volume surged with over 18k futures trading in a 1-minute period. Once yields topped 50bps, the rout was on.
To put that in context, bund yields haven’t been this high since January of 2016:
“There was some heavy supply from France less than an hour ago which I think started it,” Antoine Bouvet, an interest-rate strategist at Mizuho International Plc in London, told Bloomberg, in emailed comments. “The magnitude of the sell-off is excessive compared to what you would expect from a soft auction.”
Maybe, but the “magnitude” isn’t “excessive” when you consider the environment.
Front and center in everyone’s mind is the bund tantrum of 2015 and don’t forget that last Tuesday’s Draghi-inspired selloff was a 4-standard deviation event:
The move higher in bund yields immediately spilled over into USTs and gilts.
Here’s a snapshot of the contagion across the eurozone:
And because this market is on tantrum watch, equities got hit as well, with the DAX diving…
… Eurostoxx 600 under significant pressure…
… and S&P futs falling through yesterday’s session low on rising volatility.
Look out below.
