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Bonds and Gilts

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Posted (edited)

@JamesIG,

Some traders on IG Community expect there to be a drop in major equities. They also think precious metal prices may go up. If this plays out then an important asset which often traders never seem to talk about or discuss is Bonds and Gilts. You may wish to set up a new section on the IG Community called Bonds?

If things do play out (there is no guarantee that they will) but if they and major stock markets decline and precious metals do increase in value then I think Bonds should see a price increase in such conditions as institutions and 'High Net Worth Individuals' (HNW) shift part of their capital into this asset class to protect their portfolios. Bonds are a 'defensive' assets that tend to rise in value in such conditions. The smart money tends to enter Bonds before the mainstream media talk about them. The smart traders will notice the trends before traders begin trading them. 

Have a look at the price action on some of the following:

  • US Treasury Bond
  • US 10-Year T-Note
  • German Bund
  • US Ultra Treasury Bond
  • US 5-Year T-Note
  • US 2-Year T-Note
  • Japanese Government Bond

I for one am keeping a close eye on the price action for these (above). I shall let the price action confirm my assumptions. Also Bonds as an asset class tend to be a lot less volatile than other asset classes so they should not be crazy daily swings like we are seeing on major indices right now. 

The one thing most of the above have in common is that they are all trading above the 20, 50 and 100 day moving averages on a '4 hour' timeframe. 

Edited by TrendFollower

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Whilst the underlying trade may happen, I doubt there would be sufficient number of people who trade it for it to warrant it's own section. Volumes for this asset group are VERY low. 

It may be worth putting posts like this in the Macro Events section. If there are sufficient unique threads then we can consider it. 

https://community.ig.com/forums/forum/29-indices-and-macro-events/ 

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If one looks at the German Bund chart then it looks very interesting indeed.

The trend is upwards and the price action is supporting this over the past 12 months which could possibly mean there has been a shift in capital and strategy for some of the largest players in the bond market.

The price is trading above its 20, 50, 100 and 200 day moving averages.

The German Buxl is also showing encouraging price action over the past 12 months.

The UK Long Gilt has spiked up over the past month and so too has the French OAT and German Bobl. If you then compare this with the 3 month Eurodollar price action then it begins to tell a narrative of what may be starting to happen with a shift in capital towards precious metals and bonds.

Once Brexit and US-China trade talks are concluded then certain economies around the world may begin to unravel and head towards recession. If this were to happen then Bond and Gilt prices may be a key indicator in terms of how they behave and react.  

 

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German Buxl up 115 points today at the time of writing. 

There were some really big and noticeable price rises today on the Bond market. 

The institutions will be shifting and allocating a proportion of capital from the super rich and wealthy investment portfolio's into Bonds. 

I think we are seeing that shift gather pace. It has been gradually happening slowly over the past 12 months but I think as Brexit and political turmoil around the world takes shape then it will be more obvious and apparent.

I would expect the Precious Metals market to move in tandem and more specifically Gold but this is an assumption and I shall wait for the price behaviour to either confirm or reject such an assumption. 

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In my personal experience when I see yields on Bonds declining it means that Bond prices are rising. This activity over a prolonged period can sometimes be a signal of a potential recession around the corner. 

UK Bond prices will be very interesting over the coming weeks and months. If this is to play out like I think it will then the price behaviour on Bonds and Gilts can be added to my 'decision making basket' so that it can assist me along with many other indicators as to when the market may begin to decline in anticipation of a serious recession. 

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Apparently Italian Bonds (especially long dated over short dated) over value. 

Italy's Most Beaten-Up Bonds Are Place to Be for NatWest, HSBC

https://www.bloomberg.com/news/articles/2019-02-12/italy-s-longer-dated-debt-is-place-to-be-for-natwest-and-hsbc

I personally am interested in Germany Bonds and potentially UK and US Bonds should they teeter on a recessionary phase. Also I have more confidence in Germany, UK and US Bonds over Italian Bonds. With Brexit and turmoil in the EU another Greece is just waiting to happen. 

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Keep a close eye on Bonds as this will be a useful indicator on expectations going forwards. 

@JamesIG, I don't know if there is a problem on IG's UK Spread Betting Platform but the US Ultra Treasury Bond was up over 120 points at an hour ago so around 6:00 pm UK time. Is this right? That would be absurd move in points!

I have to admit the platform is very 'clunky' today. It may be the trading volume with Brexit negotiations and the votes this week but the platform is shaky. 

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If you have a look at the US Ultra Treasury Bond at the start of March and now then you will see that there has been a gradual increase. 

343753204_UltraTreasuryBondDecimalised_20190319_20_11.png.e03c2da6d9d7a89a5c0027a95ba7503e.png

The UK Long Gilt is showing a similar trend.

1881476803_LongGilt_20190319_20_12.png.bd2591d28b37c2d30bf0bea0daeb49fe.png

The German Bund chart on a 4 hour view shows a very interesting narrative. 

Bund_20190319_20_13.png.34a7a69d3182c412a2a53c7cc969f567.png

If the big institutions want to reduce their exposure to risk assets and they think there is going to be large drawdowns on equities, re-balancing in portfolios can occur thus increasing capital allocation in Bonds and Gilts. I find looking at the price activity on Bonds and Gilts a good indicator to the risk appetite out there for the big institutions. 

 

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German, UK and US Bonds in general seem to be in the blue this lunchtime. Gold and Silver are both in the red but are not far and seem to be making a slow and steady rise upwards since the large correction last week around Thursday time. 

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UK, US and German bonds still performing well in the blue. German Buxl was up over 100 points a few minutes ago. Gold and Silver both still in the red and not showing the same strength. The US Dollar may have something to do with this but it seems risk off at the moment. Major indices down but Bonds up more than normal so far today. 

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Bonds have started another day in the blue and this time they are being supported by both Gold and Silver. I am wondering if there is likely to be seizmic shift in capital from higher risk (equities) to lower risk (Gold and Bonds)?

If one compared the price of Gold and Bonds against equities over the same period then it may help to indicate if this could be occurring.

The Brexit uncertainty and US-China trade deal risks still remain and whilst they still do I personally think it provides a positive platform for both Bonds and Gold. Now this may not translate into the price action as markets do not always behave as per textbook theory or in line with fundamentals or news.

However it is worth keeping a close eye on Bond prices as if they begin rising significantly then this could be a strong indicator for the future.

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