Fundamentals: Demand-supply effect in May is expected to be the opposite of what we saw in April. Total net issuance of Germany, France, Belgium and Netherlands adjusted for Purchase Program should be positive, driving the yield upward. Gross issuance in May is projected to fall, but so does the redemptions + coupons. And the fall is redemptions + coupons should be much more than the fall in gross issuance. I believe that in terms of maturity split 5 and 10 year bonds will be overweighed. 1/3 of the targeted gross issuance has been reached during first 4 months, therefore one can conclude that issuance is evenly distributed and that in turn will not cause oversupply in the market in the future. Net YTD issuance of the above mentioned countries is also highly positive and constitutes certain portion of spike in rates in Q1. However, last several economic indicators, including inflation, came below estimatesand Inflation expectations of the market fell since the beginning of the year.
Technicals: Four govies in my opinion could not reach the possible maximum in April. Despite weak data yields were moving upward until the ECB press-conference. In terms of Ichimoku (except France) they were inside the cloud, which is non-trade zone to me, and after the press-conference it broke the cloud downward. None of the indicators I use for technical analysis (RSI, MACD, and DMI) could reach the level they had in February. It does not mean that yields were supposed to be at or close to the February level, but indicators (except MACD), could have been there. MACD is still below positive level, RSI has room to move downward, DMI gets negative, and thereforefrom technical analysis perspective I believe yields should drop in the first half of May. For a longer term projections I still need confirmation from some Ichimoku indicators. For 5 year France I believe 0 historically was a critical point. If it moves below 0 it is highly likely, in terms of technical analysis, it can move 10 more bps down. France could not reach the cloud during sell-off as it seems the volatility in France yields was less than volatility in other above mentioned govies. Short term Netherland seem the most resilient name during sell-offs. Technical indicators for Netherland seems similar to technical indicators of Germany.
Spreads: In may we can see flattering of around 4 bps in Germany curve. Same level of flattening is relevant to the Belgium. France is expected to end up with the highest level of flattering, at around 9 bps. Netherlands in turn, seems the only govie that can steepen and might have the highest spread at the end of the year if not the resistance it has against the sell-off.
Conclusion: Different perspectives show different results. I do believe that supply-demand will move yields upward at the end of May and beginning of June. Until that happens, techicals and data in the future will be the main drivers in the market.