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Selloff in Government Bonds May 2015

Due to unconventional policy easing (quantitative easing) taken by global central banks, bonds have been among the best performing asset classes in recent years.  But a big sell-off in the government bond markets is happening from Germany to Australia.  On 2015-04-15, the first to "predict" the "sell off" of German Bund was Doug Kass, Head of Hedge Fund Seabreeze Partners Management.  Then on 2015-04-21, Bill Gross agreed and tweeted the German bund as "the short of a lifetime".  Thereafter, on 2015-05-01, Goldman joins Gross on Bund View.

A two-week selloff in German Bunds, alongside Treasuries and British Gilts, has led to worries about eurozone monetary conditions and a possibly volatile unwinding of both short positions in the euro and investments in eurozone equities.

According to Ashish Agrawal, an emerging markets strategist at Credit Suisse, the current selloff in bonds is driven by developments in the Eurozone markets.

Indeed, the sell-off has been most pronounced in Europe which began in late April, alongside a drop in European stock markets, as a quantitative easing inspired rally starts to wane.

Some government bonds that had rallied to negative yields have now slumped to offer positive yields for the first time since early this year. The German five-year bund now has a yield of 0.07%, having yielded 0.1% last week. The five-year bund was -0.139% (negative yield) on 2015-04-21, when Bill Gross said the German bunds are 'the short of a lifetime'.

Doug Kass was the first to spot the "short" opportunity of German Bund when on 2015-04-15, he wrote to his clients: 

"Near zero to negative sovereign debt yields in Europe represent the bubble of all investment bubbles, dwarfing even the Nasdaq bubble of 16 years ago. Mark my words, I will make a fortune shorting these bonds at some point in time—probably much sooner than later. And I promise all of you that I will figure a way you all can consider (depending on your time frame and risk appetite) putting on the short European fixed-income trade."

What this meant is - buying opportunity is emerging.  Bonds of "strong" government bonds have little default risk.  But they can get swept up in times of indiscriminate panic selling.  When the fear recedes, the price of those bonds could rebound swiftly.


  1. Reuters, 2015-05-06, "Global Markets - Asian Stocks at 2-week lows as bond woes spread, dollar slips"
  2. Citywire, Daniel Grote, 2015-05-06, "Investors dump bonds in Global Fixed Income Rout"
  3. CNBC, Jeff Cox, 2015-04-21, "Bill Gross:  German bunds are 'the short of a lifetime'"
  4. ValueWalk, Mark Melin, 2015-05-01, "Goldman Joins Gross on Bund View, Sees ECB Stimulus Differently Than Eurozone"