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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Disclaimer
The above content is provided for educational and informational purposes only, does not constitute a recommendation to enter in any securities transactions or to engage in any of the investment strategies presented in such content, and does not represent the opinions of Bondsquawk or its employees.

 
 
 

3 Comments

  1. python says:

    Are the credit markets voting against QE3 even though the equity markets are voting in favor of it?

  2. [...] Squawk: The 10 year treasury is blowing through support levels - 10yr US yields surged higher yesterday through key support at 1.73/77% – the June chart high [...]

 
 

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