"Could you possibly give a technical view on the recent sell off in long bonds (+10yrs in UST and Gilts) - I am interested in whether the recent action may signal an opportunity to build a short position. Many thanks"

Eoin Treacy's view Thank you for this question which others may also have an interest in. I discussed the Treasury market in last night's audio but let me summarise my view. Anticipation of quantitative easing has previously been more bullish for prices than its actual implementation. This is a typical example of the old market saying "buy the rumour sell the news". However, there are additional considerations.

The next auction of 30-year Treasuries is on the 13th. Primary dealers will of course seek to get the best possible yield. It is therefore a happy coincidence that prices have fallen from a peak of 146.4 on October 4th to the region of 140 today. The current area is of psychological importance because a sustained move below 140 would greatly increase the potential that a medium-term top has been completed. How prices behave after the auction on Thursday will probably be instructive.

Just about all sovereign bonds that have any status as a potential safe haven rallied impressively from early this year but lost momentum from August. Gilts in particular have weakened over the last month. They broke the progression of higher reaction lows this week and the fall below 128 increases the chance that a medium-term peak has been reached.

Provided Eurobunds sustain their decline below 135, they can also be deemed to have hit a medium-term peak. The Australian 10-year has a relatively similar pattern while the Canadian 10-year has been somewhat stronger. The Swiss 10-year has a relatively similar pattern.

The commonality of the sector argues in favour of the conclusion that the above sovereign bonds have reached peaks of medium-term significance. Sustained moves to new highs would be required to question this hypothesis.