The German 0,20-year rate, today at a level of XNUMX%, is a synthesis of many aspects of this crazy market at the beginning of the year: above all, it is the real litmus paper of risk aversion in the market, a thermometer that measures the fever of fear that has taken over the price lists for the first 40 days of the year; we started at the beginning of 2016 with a ten-year rate in the 0,60% area to find ourselves with a value equal to just one third of the initial value after three months; in the meantime we had time to see even a low in the 0,10% area on the last day of the month of this leap year February; 0,10% is a close relative of the 0,075% absolute minimum reached on April 25, 2015, a level from which a very violent correction then started last year which in a few weeks brought the rate back to almost 1%, with a swing that left at least psychologically indelible wounds in the memory of bond traders.
The big difference is that in 2015 these numbers had the announcement of QE behind them, while today's bund incorporates, in addition to the uncertainty mentioned above, also the expectations for this Thursday's appointment with the ECB Mario Draghi which has already promised a new round of stimuli for this meeting.
The usual dilemma on the ECB, its moves and its sometimes perverse effects with a game of correlations that are sometimes really counter-intuitive is therefore re-proposed: if Draghi disappoints with less QE than expected, then the entire German curve is in fact expensive and vulnerable but the market for risky assets could resume the correction and therefore the bund would return to money; if Draghi beats expectations the bund could even have margins of appreciation even starting from these levels but ironically if the market were to bet that the measures are really effective on the real economy and inflation then the bund at these rates would be very expensive and in the rally risky assets could be an easy sacrificial victim. So it will be important distinguish tactics from strategy and identify which aspect of the various souls of the bund it is decided to privilege over the different time horizons.
