Despite Back Up Lower Yields Targeted
July 31, 2012
Investors used last week’s back up in interest rates, which was fueled by positive economic data and ECB intervention speculation, as a buying opportunity.
Credit Suisse’s research analysts David Sneddon, Christopher Hine, Pamela McCloskey, and Cilline Bain provided color in their July 31, 2012 U.S. Fixed Income Daily regarding the yield on the 10-Year U.S. Treasury:
10yr US yields’ sharp sell-off has managed to find some stability at key short-term support at 1.55/60% – 40-day moving average, chart, and channel support. We look for a test of the 1.465% chart barrier. Below here is required to re-open a test of the 1.38% record yield low and trend resistance. We again look for selling here and only below here would open up a test of the 1.35% Fibonacci barrier. Support shows at 1.525%, then 1.56/60%. Above here is needed to signal a more extended push higher to chart support at 1.675/70%, with key levels at the 1.73% yield peak.
In addition to the aforementioned 1.465% barrier, they see resistance at 1.38-1.39% and 1.11-1.13% yield on the 10-Year U.S. Treasury.
Their current strategy continues to be in the bullish camp as they have a long position at 1.55% with a target for 1.39%. In addition, they have a Stop-Loss set at 1.60%.
While bullish on 10-Year Treasuries, the research team thinks we need to see more evidence before making another push lower in yields for the 30-Year.
30yr US bonds have held and rallied from retracement and trend support at 2.70/725%. Resistance shows next at 2.54/52% and extension through here is needed to reopen a test of the channel resistance at 2.45/44%. We would again look for selling here and a bounce in yields. Below 2.445% would get the bull trend back on track for 2.25/20% next.
Above 2.60% aims at 2.65% ahead of 2.70/725%. Through the latter is needed for a deeper sell-off to 2.76/78%.
In addition, they see support at 2.83-2.855% and at 2.90%.
Credit Suisse’s team is currently flat and given current levels, they will look to buy at 2.65% with a Stop-Loss at 2.725% with a target of 2.45%.
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