Eoin Treacy's view Sovereign bond markets are one area of the financial markets where increased supply is practically assured. Nevertheless, prices remain relatively high in a number of markets, due to the distorting influence of central banks, acting as buyers of last, and increasingly first, resort. Also see David's piece yesterday focusing on Gilts.


The Chart Library has a large number of sovereign 10-year yield charts. Today, I put them into a section of my Favourites and used the 'View All Charts' facility to click through them. A number of countries share Gilts' chart pattern. 10-year yields for the UK, USA, Canada, Singapore, South Korea, New Zealand, Australia, South Africa and Norway have all rallied from last year's lows. Some are pressuring their range highs but the general theme is one of relative yield strength.

Elsewhere the story is somewhat different. Swiss 10-year yields just tested their 2005 low near 1.8%. The yield jumped back to 2% in the last week and looks likely to form a failed downside break from the previous yearlong range. A sustained move to new lows is now needed to question scope for further upside. The respective price chart hit a 20-year peak in late December and is pulling back from the area near 138. A sustained move to new high ground would be required to question potential for some further weakness.

Swiss bonds price action is notable but the same pattern, although less emphatic is evident across a large number of continental European bonds The Generic European 10-year found support in the region of 3% early last year but retested the low from September to late December and is currently pressuring the upper side of that range. A downward dynamic would now be required to question potential for some further upside. The Japanese 10-year has a similar pattern.

Due to the interference of just about every central bank in their respective sovereign debt market, the risk of attempting to trade against them is higher than might normally be the case. This would suggest that the lowest risk time to short government bond futures is following major advances such as in Swiss bonds rather than UK government bonds which have already had a relatively large move.