German Bund Yield May Resume Drop, SEB Says: Technical Analysis

German 10-year bond yields may resume a decline after rising last week by the most since July, Skandinaviska Enskilda Banken AB said, citing trading patterns.

The recent move higher in yields should be considered a “correction” as long as they don’t rise above 1.74 percent, SEB analysts Anders Soderberg in London and Dag Muller in Stockholm wrote today in a note to clients.

“After a five-wave decline from September to December, the market has embarked on a corrective move higher,” the analysts wrote in the note, referring to so-called Elliott Wave Theory. “Unless the surge climbs above the September peak of 1.74 percent, the most should be defined as a correction within a persistent downtrend.”

Germany’s 10-year yield fell two basis points, or 0.02 percentage point, to 1.49 percent at 2:24 p.m. London time after dropping two basis points yesterday. The rate jumped 23 basis points last week, the most since the period ended July 27.

“If the yield drops back below 1.29 percent, it would be a strong argument for looking forward to yet another marginally historically low point,” Soderberg and Muller wrote.

Elliott Wave Theory, created by American accountant and author Ralph Nelson Elliott in the 1930s, seeks to predict moves in financial markets by dividing past trends into five sections, or waves. The theory proposes that a five-wave gain or decline is followed by a three-wave move in the other direction.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, currency or index.

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