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The yield spread differential between the 10Y Treasury and the 10Y Bund has peaked at 201.4 basis to then see an intraday 197.1 basis points differential, where the 10Y Treasury yield 1.61% while the 10Y Bund Yield -0.36%. The chart below on a monthly skew elaborated the parallel between yields and how the 10Y Treasuries Yield, would likely trail also the 10Y Bund yield curve to steepen, where a consistent steepening signal in yield would be the drifting above the IKH Senkou A/B Nuage, with a 0.30%<0.40% yield for Bunds, eventually in the near future, after 2022, our assumption would consider the tail risk that a 1.0% Bund Yield would not be an unforeseen sovereign debt market dynamic, considering the 10Y Treasury yield 2.5%<3.2% forecast.

Chart below of Bund prices requires a test below the Kijun line to open up price action for off the run Bunds to be sold by investors in order to raise liquidity levels, whenever necessary, either to weekly rebalance debt/obligation portfolios, considering immunization strategy and asymmetric term structure tail risk, that for the Euro Area sovereign debt market are consistently low and uneven, as long as the ECB would be supportive with bond-buying programs.

In the longer term, a repricing of Bund issuance could be a possible sovereign debt market outcome, with a range of €130<€150 price for 10Y Euro Bund Futures issuance.

However, the German economy will likely be in need of prolonged fiscal support for 2021 and beyond, fiscal support that would not be aligned with the traditional balance of having a Primary account surplus that has brought the Debt/GDP ratio to 59.6% in Q4 2019. In fact, Germany debt/GDP ratio increased to 70.0% in Q3 2020 while the complete data should be 73.28% for 2020. According to projection figures, Debt/GDP should start to fall in 2022, however, given the very difficult health emergency in Europe and globally that would engulf a larger part of 2021, it becomes possible to foresee how the German economy will gradually recover its output in 2022 and that Fiscal policy at the macro level will require a consistent form of support to continue in 2022 and forward, thereof considering sustainable levels of Fiscal Deficits also in 2022 that would see Germany national debt/GDP ratio near and above 75% in 2022, that would then start to impact the interest rate and Bund Yield term structure.

Germany: National debt in relation to gross domestic product (GDP) from 2015 to 2025

The Germany 10Y Government Bond has a -0.363% yield.

10 Years vs 2 Years bond spread is 35.8 bp.
Normal Convexity in Long-Term vs Short-Term Maturities.

A farther forecast of the yield, for March 2022, is -0.036% (+32.7 bp vs last quotation)