Watching German Bund Yields, BUNL (Bund Future ETN), EUR/USD (2/1/2012)

German government bonds (bunds) and the euro will be interesting to watch as Greece either makes a deal with Greek bond holders to take a 70% loss to reduce its debt load by 100 billion euros, which would allow the next rescue loan from the EU (mainly Germany) and International Monetary Fund (AP), or sees a disorderly default. To make things even more interesting, the European Central Bank "is planning a second round of three-year bank loans next month (LTRO), after lending 489 billion euros ($645 billion) in December" (BusinessWeek), to add more emergency liquidity to the banking system and for banks to buy distressed sovereign debt like a carry trade. Portugal is getting hit as well. On early Monday morning, Portuguese bond yields, its spreads to German bunds, and 5-year CDS rose to new highs.

Tom DeMark mentioned last week on Bloomberg TV that German bunds were exhausted to the upside and could collapse if a signal was triggered. German bunds moved up since then (yields down), but they could be setting up again. Bund bears are fighting a strong uptrend. Egan-Jones downgraded Germany's credit rating from AA to AA- on January 18. Sean Egan, co-founder of Egan-Jones, told CNBC's Fast Money and Fox Business that they downgraded Germany because its debt/gdp ratio was rising, and it will have to "absorb the cost" of supporting other eurozone countries on the brink (Greece, Portugal) through bailout funds (EFSF etc.). But, Egan mentioned that German bond yields would stay down in the short-term because it remains the safest credit in the eurozone during the sovereign debt crisis, and the ECB is pumping liquidity into the system to keep rates down (as mentioned above). It's similar to why U.S. Treasury bonds rallied after they were downgraded by S&P. Below are charts of 5 and 10-year German bund yields, BUNL (the German Bund Futures ETN), and EUR/USD. EUR/USD is trying to climb back above the recent uptrend line. It is currently at 1.31734, +0.79%.

5-Year German Bund Yield (Source:

10-year German Bund Yield (Source:

BUNL (German Bund Futures ETN) (Source:

EUR/USD (source:

Here is more info on the PowerShares German Bund Futures ETNs PowerShares. Read:

"The ETNs are senior unsecured obligations issued by Deutsche Bank AG, London Branch that are linked to the month-over month performance of the DB USD Bund Futures Index. The DB USD Bund Futures Index is intended to measure the performance of a long position in Euro-Bund Futures. The underlying assets of Euro-Bund Futures are Federal Republic of Germany- government issued debt securities (“Bunds”) with a remaining term to maturity of not less than 8 years and 6 months and not more than 10 years and 6 months as of the futures contract delivery date."

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