Recent Break Signals a Rise in Yields
By Rom Badilla, CFA
August 16, 2012
The recent selloff in U.S. Treasuries resulted in the 10-Year yield blowing through support levels to end Wednesday’s session at 1.83%. As mentioned before, a pierce through support gives the Treasury bears the upper hand for the time being which may result in higher yields in the short-term.
Credit Suisse technical analysts David Sneddon, Christopher Hine, Pamela McCloskey, and Cilline Bain, think that a deeper selloff may be in the cards for now. In Credit Suisse’s latest U.S. Fixed Income Daily, they provided the following color:
10yr US yields surged higher yesterday through key support at 1.73/77% – the June chart high and the 38.2% retracement of the entire March-July rally. This signals a more significant bearish turn for 1.82%, then 1.87/92% – the 200-day moving average and the 50% retracement of the March-July rally – where we look for fresh buying. Above would aim at 1.98%.
Below 1.68/65% would aim at 1.63% and through here is needed to ease bearish pressure for trend resistance at 1.60/56%.
The research team reversed to sell the 10-Year at 1.77% with a target of 1.87% where they plan to buy it back at a lower price. This short trade is targeting a 10 basis point move that should equate to a 0.9% gain in market value given the duration of the 10-Year at 8.9 years (8.9 Years x 0.10% = 0.89%). A Stop-Loss is set below 1.68%.
Like the 10-Year, the Long Bond has surpassed support levels which turns the table and signals higher yields for the 30-Year U.S. Treasury.
30yr US has aggressively surged through former support at 2.83/855% – chart props and the 38.2% retracement of the March-June rally. This has signaled a more extended sell-off and turns attention 2.96/97% next – the 50% retracement level and the 200-day moving average. We look for an attempt to hold here, but should it be removed would see a deeper sell-off to 3.085/10%.
Below 2.85% aims at 2.80%, but through 2.71/68% needed to ease immediate bearish risks for 2.64%.
As with the 10-Year, the analyst team reversed to a short position with a target of 2.96%.
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