Despite defense from the European Central Bank chief Mario Draghi, over the central bank’s monetary policies the bond market seems to be worried over a change of course. The current purchase program is going to end in March next year and the European Central Bank (ECB) is reportedly searching for tools to boost inflation. The bond market is also worried over a looming rate hike from Fed, which may come as early as next week.
We have already called for a sell break out in bund below 162.5 area and we suspect that the breakout is coming soon. Once that level gets broken we see the Bund trading around 160 level, where it should find a strong support. However, we suspect that Bund could decline further and reach as low as 153.