We at FxWirePro, have been short in the 10-year bund at 162.5, with targets at 159 (reached), 153, and 151 and in the latest article on 10-year bund post-ECB stimulus, we recommended maintaining the short side outlook to our readers and to add fresh short positions at rallies. The rationale behind our short position in bund is the inflationary outlook against which higher yields make sense. And when yield goes up, bond prices go down. Today, German 10-year bund price declined from 164.4 to 163.4 in response to regional inflation readings, which showed a sharp increase in the price pressure. Prices in Brandenburg rose by 1.7 percent in the year to December, an acceleration from 1 percent in November. In Hesse, prices rose 1.9 percent, up from 0.8 percent, while in Bavaria, they gained 1.7 percent, from 0.8 percent.
While we maintain our outlook for 10-year bund, we strongly feel that German benchmark stock index remains well underpriced. Before the financial crisis of 2008/09, the German benchmark was trading at 8100 and currently it is trading at 11600, but in the dollar terms, it is at about the same level while its US peer S&P 500 index is 46 percent higher.
