Bursting Bund Bubble: 2 Charts & Some History Lessons

On Thursday we witnessed the culmination of what has been a weeks-long German Bund rout. At one point yesterday, yields on German 10s hit 77bps, up from below 10 in mid-April. The severity of the move has taken some (but certainly not us) off guard. For instance, Bill Gross — whose “short of a lifetime” call might have ironically been the catalyst for the sell-off — appears to have underestimated just how illiquid the market has become, because as we reported on Thursday, the Janus Unconstrained Bond Fund had taken a few rather large positions by the end of March which seemed to indicate that Gross was not anticipating his ‘big short’ call to play out so quickly. As we noted, all of this is the inevitable consequence of central bank actions which have quite literally broken the markets, meaning the last vestiges of “efficiency” went out the window a long time ago. His Deutsche Bank’s Jim Reid with more: