I have sold the German bund. Technically the yield is at the bottom of its trading range and seems to be turning up again. Also, the gilt yield almost 1% higher than the bund yield, and gilts have broken out above 4%. Thus if the spread stays this wide and the gilt breakout holds, bunds will go higher; if the spread narrows, there is scope for the bund to while the long gilt stays where it is. It is true that the spread might get wider, but that takes us on to fundamentals.

Fundamentally risk appetite seems to be improving again with the market focussing on the good side of the economic news. I suspect bund yields have been pushed down by the Greek situation, which now looks on the way to being resolved in the short term — all those people who have been selling Greek bonds must have been buying something. Turning to the gilt spread, the YouGov poll that showed a 2-point lead for the Conservatives seems to have been a rogue — another YouGov poll last night showed the Tories with a 7-point lead, and a ComRes poll put them 5 points ahead. The Labour support chart doesn’t seem to be able to break the key 35 level. The Tories are getting back into the news and voters tend to like them when they see more of David Cameron, so this suggests the Labour resistance level will hold. This all leads me to think that the hung-parliament panic is overdone and the gilt spread needs to come in (I am still short GBP/USD because the ComRes poll has led to a Bloomberg story with a negative slant — I expect this narrative to carry on for a day or two). Thus it makes sense to be short long-dated government debt, and in bunds rather than gilts.

Chart shows entry level. Longer-term chart is not available for the May bund so I have used the March chart to give an idea of stop and entry levels. Final chart, from Bloomberg, shows the bund yield.

Entry into this trade was another attempt to use the opening range breakout — which so far seems to have worked well. I placed an order to open below the low of the opening range, and therefore caught this sharp breakout; I also had an order above the range, at a much better entry level.