The markets are playing with ECB President Mario Draghi. Just a few short weeks ago the suave performer of the ECB press conference only had to be concerned about being doused with paper confetti from an anarchist demonstrator decrying the dictatorial powers of the central bank. Post-ECB meeting, the BUNDS, OATS and BTPs made all-time highs in the futures and yields on German and French 10-year notes touched extreme lows. As the ECB paraded the success of QE the EURO currency was also trading at multi-year lows, 1.06 euros to the U.S. dollar.
Now all the work of the Draghi QE plan has been eroded as yields have climbed from 5 basis points on the 10-year bund to a close of 70 BASIS POINTS today. The euro traded back to the 1.13 level it was at when Draghi announced the QE program on January 22. The BUND futures are now trading below the low of 153.81 on the day of the ECB QE announcement. For all those in the technical realm, the 200-day moving average on the equalized active daily continuation is 152.50. We have traded through the moving average twice but have not yet closed below it.
Remember, the ECB has 60 billion euros worth of assets to buy for the entire month so the ability of President Draghi to inflict pain upon all those short bunds, OATs and BTPs is very great. I bring this to your attention because hell hath no fury as a central banker scorned. Watch for clues to ECB buying of sovereign assets. I doubt the ECB was active today because the U.S. bond and note rally failed to give a significant lift to the European bonds. Again, the ECB has a great deal of ammo left to cause short positions to run for cover. As my friend Norb B. often says: “The market’s job is to cause as much pain as possible.” So let the markets sing this wonderful song to Mr. Draghi:
That’s life,that’s what all the people sayYou’re ridin’ high in April, shot down in MayBut I know I’m gonna change that tuneWhen I’m back on top, back on top in June.