Technical Tea Leaves Calls for Higher Rates

By Rom Badilla, CFA

October 12, 2012

Despite selling off earlier, the 10-Year U.S. Treasury found support at higher yields as buyers emerged at 1.75%. While the yield has fallen since then, bearish risk remains that could point to 1.80% for the benchmark Treasury.

The Credit Suisse technical analyst team of David Sneddon, Christopher Hine, Pamela McCloskey, and Cilline Bain continue to expect the yield on the 10-Year to head higher. In their latest U.S. Fixed Income Daily, they wrote the following:

10yr US has found fresh buying interest at the 1.75% retracement support. This sees it reverting to test the 1.65/66% break out point. We expect this to try and hold and while intact the risks remain bearish in the range though 1.75% to firmer support at 1.80/82% – chart support and the 200-day MA. We look for this to hold and to see a reversion lower again into the range. Only through 1.89/90% would a larger base be signaled.

Below 1.66/65% is needed to ease immediate bearish risks for 1.60/59%. Through here is needed for a test the 1.54% September barrier, which we would expect this to hold.

Credit Suisse: Bond Trading 10-Year U.S. Treasury

The team is currently short at 1.61% with a Stop-Loss set below 1.60%. Their target is for 1.79% and look to reverse their stance and go long at this level with a Stop-Loss above 1.82%.

As for the Long Bond and like the 10-Year, the tea leaves in the charts reveal a bearish bias assuming resistance holds.

The 30yr’s inability to overcome the 2.98/3.00% level has seen buying emerge and it end forming a bullish outside day. This opens up a test the recent yield base at 2.85/87%. We look for this to try and hold to maintain bearish risks. Should this be removed this would aim at 2.82/80% and through here is needed for more neural theme for 2.78/77%.

Above 2.96% looks to 2.98/3.00%. Above here is needed to see selling to more important levels at 3.10/125% – the 61.8% retracement of the 2012 rally and trend/chart props – which we would expect to hold.

Credit Suisse: Bond Trading 30-Year U.S. Treasury

The team at Credit Suisse reversed a long position into a short one at 2.86% with a target of 2.98%. They have in place a Stop-Loss below 2.82%.

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