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Takeaway: Tactically buying German bonds in a very uncertain environment.

Positions in Europe: Long German Bunds (BUNL); Short EUR/USD (FXE); Short Spain (EWP)

Keith bought German Bunds via the etf BUNL in the Hedgeye Virtual Portfolio today. The etf is in a bullish formation, meaning the current price is above its intermediate term TREND and long term TAIL levels (see chart below).

Idea Alert: Buying BUNL - cc. bunl

Aware that there is no “safe haven” play in Europe, we like the risk/reward set-up of German fixed income at the right price. Germany’s “messaging” has not been completely of one mind in recent months.  Bundesbank President Weidmann continues to reiterate his opposition to ECB purchases of peripheral sovereign debt, warning that “central bank financing can become addictive like a drug.” He is also opposed to the sharing of risk via Eurobonds. Meanwhile, Chancellor Merkel has voiced support for Weidmann but has stopped short of endorsing his views outright, and continues to suggest that she will continue to pull out all stops to save Greece (and other peripherals as necessary) and has not completely ruled out Eurobonds.

Certainly German fundamentals in recent months have not provided a hook to hang one’s hat. Despite a marginal improvement in Manufacturing PMI for August (44.7 vs 43.0 in JULY); the unemployment rate has been locked in at 6.8%; CPI increased 30bps to 2.2% in August Y/Y; Retail Sales fell -1% in JULY Y/Y vs +3.7% JUNE; and IFO, ZEW, and GfK consumer and business confidence surveys largely continue to decelerate or show little material inflection. 

Idea Alert: Buying BUNL - cc. ifo

Idea Alert: Buying BUNL - cc. zew

Idea Alert: Buying BUNL - cc. factory orders

Matthew Hedrick

Senior Analyst