Don't Bet Against Bunds

From Nomura’s European rates strategist Desmond Supple:

Were the market to price-in an imminent break-up of the EUR, in our view Bund yields could go negative out to 5yrs, while for the 10yr sector we would expect yields to move far below 1%.Given the value of the embedded FX option in the Bund, we think it is not impossible that yields will approach the cycle low in 10yr JGB yields in 2003 of 44bp…

We hope that this scenario does not materialise. We hope that we are incorrect in ruling out meaningful fiscal union or that we are incorrect in assuming that the ECB will only provide a policy response that is proportional to the crisis when its toes are dangling over the precipice. But history is not on our side. Hence, despite the low level of yields, we remain extremely bullish on Bunds.

Read it at FT Alphaville
Ten-year Bund yields below 1%? Wouldn’t faze Nomura
By Simon Hinrichsen

Sometimes the gambles that everyone else is unwilling to make are actually the best. Analysts predicting a rise in JGB yields have been wrong for the better part of two decades. Treasury yields have likewise continued to fall despite being a hated asset class for much of its 30-year bull run. For my money, 10-year Bund yields below 1% seems far more likely than a full European fiscal union.