Don’t Use The ‘Ghost Of 2015’ As An Excuse To Enter Notorious Bund Widowmaker, Goldman Warns

Remember the 2015 bund tantrum?

Bill Gross does. After all, he called it (bunds were “the short of a lifetime”) and then played it wrong. Long story short, Bill Gross didn’t listen to Bill Gross.

One Friday, following the latest dour read on German manufacturing, bund yields pushed below zero again.

Naturally, that got folks to wonderin’ whether another tantrum is in the cards.

For Goldman, the answer is no – or at least probably not.

“With bund yields now back at symbolically important levels around zero, we have received an increased volume of questions on the possibility of a correction higher in yields, akin to the 2015 bund tantrum”, the bank writes, in a note dated Monday, adding that if you ask them, it is “reasonable to say risk-reward is more balanced for longs in EUR duration [but] current macro conditions are still supportive of low yields and it is unlikely we see a significant sell-off in bunds”.

In other words (and forgive us for speaking colloquially): The macro sucks and bund yields, despite having declined rapidly, still aren’t where they “should” be considering the Germany economy looks pretty recessionary right about now.

“Growth has been decelerating over the last year, and for Germany activity is close to stalling”, Goldman goes on to say, before noting that while they “ultimately think this will prove temporary, the market has rightly adjusted to the risks of weaker outcomes.” As far as inflation goes, the bank notes that headline is still declining (as the crude impulse rolls off) and core is flat. That stands in contrast to 2015.

(Goldman)

Beyond that, the bank notes that i) core curves across the pond still offer carry and roll, ii) real yields, while near the levels seen in 2015, haven’t fallen as sharply as they did in the lead-up to the bund tantrum and in any case, current levels are explainable by reference to the global dovish pivot from policymakers and, of course, iii) the political landscape in Europe is still fraught ahead of the EU elections, which means there’s always a case to be made for “the only all-weather EUR safe asset”.

So, there you go. Don’t use “the ghost of 2015” (to quote Goldman) as an excuse to put on a notorious widowmaker lest you should yourself end up becoming a “ghost.”