Recent Rally in U.S. Treasuries May Be Short-Lived Says Analyst Team

By Rom Badilla, CFA

October 3, 2012

With today’s close at 1.62%, the 10-Year U.S. Treasury has held support at 1.63%. Given this, the yield on the benchmark note may probe lower and test the 1.54% resistance level.

Despite this potential direction, the Credit Suisse technical analyst team of David Sneddon, Christopher Hine, Pamela McCloskey, and Cilline Bain think the price on the 10-Year U.S. Treasury appears rich and would look to position for higher rates. In their latest U.S. Fixed Income Daily, they wrote the following:

10yr US yields were unable to sustain early selling after finding support at accelerated trend props at 1.63%. We must allow for strength to potentially extend a little further, but yields are now stretched and we look to fade further strength to the 1.54% September barrier, which we expect to hold. Only below here would expose the bottom end of the range to 1.45/44% next.

Above 1.63% looks to the 1.66% yield high. Through here is needed for a small base for 1.73/75%.

Bond Trading 10-Year U.S. Treasury

In addition, they see important resistance at 1.38% and support at 1.79/1.80%.

The technical analyst team’s strategy is to sell or short at 1.60% with Stop-Loss below 1.53% and a target for 1.80%. They are currently flat and do not have an existing position.

As for the longer end of the yield curve, the 30-Year U.S. Treasury closed today at 2.82%. Currently, the team from Credit Suisse needs to see an uptick in yields beyond support before jumping on board the bear wagon. Until then, they maintain their bullish bias.

30yr US saw a choppy and indecisive session yesterday that saw it end forming a “Doji” candle line. Yields remain stretched short-term, but minimally above 2.85/86% is needed to put in a small base and remove remaining bullish risks. Should 2.78/77% be removed this would aim at 2.70% ahead of a bigger test at the September 2.65% chart low

Above 2.85/86% would put in a small yield base for 2.92% level. Above here is needed to look on to 2.99/3.00%.

Bond Trading 30-Year U.S. Treasury

In addition to the aforementioned levels, they see important support at 3.03% and 3.09/3.125%

Currently, the team is currently long the 30-Year U.S. Treasury with a Stop-Loss set above 2.86%. Their target is for 2.70%.

Visit Bondsquawk on Facebook!

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.