Rally in U.S. Treasuries Masks as Correction with Higher Yields Expected

 

By Rom Badilla, CFA

October 22, 2012

Despite the recent rally in U.S. Treasuries, the last week’s break out from support should prove significant in the direction of interest rates.

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 increase. In their latest U.S. Fixed Income Daily, they wrote the following:

10yr US ended the week correcting back to the 1.76/75% break out point. We look for this to hold and to see a push back up and through 1.835%. This would then clear the way for a test of key support at 1.89/90% – the 50% retracement of the 2012 rally and the September high. We expect buying here and through it is needed for an intermediate base for 2.00/01%.

Below 1.76/75% would aim at 1.72% and through here is needed to ease immediate bearish risks.

Currently, the technical strategy team is flat but is looking to short or sell at 1.75%. Here, they would set a Stop-Loss below 1.72% with a target of 13 basis points higher to 1.88%.

While the 10-Year is currently kissing resistance, the bearish bias remains for the Long Bond. With the 30-Year U.S. Treasury trading at 2.95%, yields on the long-end of the curve are expected to head higher after the correction is made according to the Credit Suisse analyst team:

30yr US ended the week on a firmer note and correcting recent weakness. We allow for this to extend further to 2.915/90%. Through here would see the risks turn back to retracement and chart resistance at 2.801/77%. We would look for this to hold and only below it would bearish risks be eased.

Above 3.01/04% would turn the crosshairs back on medium-term levels at 3.10/125% – the 61.8% retracement of the 2012 rally and also the September chart high. We would expect this to hold again initially and see a setback from here. Above though would put in an intermediate base and aim at 3.23% next ahead of 3.3.3/34%.

As with the 10-Year, they technical strategy team is flat but may try for a short at 2.88% with a Stop-Loss below 2.82%. At that entry point, their target is for a 12 basis point move with the 30-Year reaching 3.00%.

Original post can be found Here

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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.

 
 
 

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