There are two ways to approach the weakness in bond markets over the past two days, and before we discuss them, I should warn you that I don't know which way is the right one.  The first approach would be that we're in the middle of a correction within the longer-term downtrend accompanied, or even driven by a similar correction in an even more epic downtrend in Germany.

On April 21st, I suggested short term motivation for bond markets might come from a technical bounce that looked to be taking shape in German Bunds.  A week later, bond gurus who either manage or used to manage a lot of money said various things to take the notion of a Bund bounce to a higher level.  In fact, they might even be more bearish on the big picture.  This then, would be the second approach, aka Bill Gross' "short of a lifetime" on European debt (one of the reasons rates are as low as they are in the US). 

So the question: is it just the correction that I was wondering about last week, or is it a more meaningful opportunity for a wholesale shift in the long term bond market trend?  See...  when I say it like that, it seems silly to buy into this "short of a lifetime" stuff just yet.  Granted, that COULD turn out to be the case, but what have we really seen to convince us of that yet? 

So Bill Gross thinks 10yr Bunds are a good sell as the yields got dangerously close to 0%.  Where was he on every other tenor of German debt 7yrs and under that's seen negative yields for well over a month?  Why now?  Why 10's?  Why wasn't as much of a trigger when Germany's 2yr yields hit negative territory in 2012 and 2013, or when they dipped permanently into negative territory in August of 2014?  OR when they went BELOW the ECB deposit rate 2 months ago?

Don't float your loans based on what I'm about to say, but let's start doubting the long term European debt rally when it actually breaks out of the long term trend channel (as opposed to continually pushing it into more bullish territory).  Any long term bet against Bunds before that is a quintessential attempt to catch a falling knife--something that's burned both Gross and Gundlach severely in the past.

To be very very clear, I'm not saying such a bounce should be ruled out.  After all, my stance on ECB QE was that by the time it was finally announced, most of the benefit would be priced in and the reflationary effects would paradoxically make for rising interest rates.  I'm just saying it's a bit soon to "rule in" such a bounce.  Hopefully we see that born out in the coming days.

In fact, today is an important one as it's a month-end day that theoretically has a bit of extra positivity from month-end buying.  So if we still manage to see a negative day, not only would it be telling in that regard, but it would also confirm a break above the mid-point of the long term range from yesterday as well as a break of the upper Bollinger Band (a technical study where a confirmed break of an outer line often hearkens more movement in the same direction).  In the chart below, there are two sorts of moves we tend to see when yields break the upper line.  Either it would be like it was back in March where it signaled a bounce (referred to as a "reaction high" or "reaction low"), or it would lead to additional heavy selling.