10 yr Notes/Bunds under pressure

The government bond market is under some selling pressure lately and had a poor close on Friday and is opening up this morning under more pressure in front of todays IFO. Inflation worries, supply issues and risky asset recovery are the main drivers. Is this the usual May culmination on negative interest sentiment and is there a clear seasonal pattern ?

In the following, I look at the development in US 10 yr notes divided between moves in first half (1H) and second half (2H).

(click to enlarge)

Accumulated it look like this.So clearly there have been a strong seasonal tendency for government bond yield to raise in 1H and fall in 2H.

(click to enlarge)

Looking just at the moves in June it looks like this.

(click to enlarge)

Here there is also a clear seasonal tendency, but the last big move happend in 2003 in connection with the rebound in equities following 2001-2002 bear market. So putting all fundamentals aside the move in government bond yields in June is very likely to be related to the move in equities. The updated version of my equity graph for 2009 is shown below. Still undecided here, but the consolidation so far in May have been more negative and lasted longer than in 2003.

(click to enlarge)

It looks like the next few days will be important for equites as the next move up has to come very soon unless we begin to fade again like in 2008 and that would probably be very important for government bond yields on June. I am still negative on equites here, but also aware that the next few days could be very decisive for that call.