“Something odd happening today. With Spanish and Italian yields being forced higher, the Bund future has lost, at the time of writing, 130 ticks. We all know certain government bonds are hugely overvalued, but perhaps this is the start of an unwind.”

Eoin Treacy's view Thank you for this timely observation. Spanish bond yields rallied impressively yesterday and improved on that performance today to hit a new high of 6.83%. Italian yields also rallied today, extending the three-month rally. Both suggest a heightened risk premium. Until last week, German Bund yields had fallen for 10 of the previous 11 weeks. This is the second week to the upside in what looks to be at least a reversion towards the mean.

EuroBund prices had become as overextended relative to the 200-day MA as they have been at any time in the last five years and are reverting towards the mean. Looked at from the perspective of the stock market, sovereign bond prices have been the best performing asset class over the last couple of months, following a spectacular run for equities in the first quarter. While the outlook for equities appears at first glance to be rather uncertain, the short-term outlook for bond prices is downwards. In that context, this does not look like the best time to be bearish of equities.