Despite Rally in U.S. Treasuries, Trend Still Intact for Higher Rates


By Rom Badilla, CFA

November 1, 2012

The 10-Year U.S. Treasury has rallied in recent days as the risk-off in equities has increased the bid for safe-haven assets. Despite this, the trend for higher rates is still intact according to Credit Suisse’s technical analyst team.

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 as the benchmark note hits resistance. In their latest U.S. Fixed Income Daily, they wrote the following:

10yr US yields reversed early selling pressure and have pushed through the 38.2% retracement barrier at 1.70%. This saw a bullish outside day form and keeps the focus on resistance next at 1.65/63% – trend hurdles from the early September low. We expect a fresh attempt to hold here and only below would expose 1.60/58%.

Above 1.76% is needed for a small base for 1.80%. Extension through here is needed for a bearish tone and to retest key support at 1.89/90%.

Bond Trading 10-Year U.S. Treasury

Their current strategy is to short the 10-Year at 1.70% with a Stop-Loss below 1.68%. Their yield target for the benchmark note is for 1.80%.

Farther out the yield curve, the Long Bond at a yield of 2.85% has traded below the upward trend line which leaves the focus on a bigger test lower.

30yr US yields reversion to the 200-day MA at 2.93% uncovered renewed buying and has seen a bullish outside day that has removed the 2.88/87% retracement and trend barrier. This keeps the risks to test resistance next at 2.85%. Below here would throw open a test of 2.80/77%, which we would again expect to hold and see yields rebound in the range.

Above 2.89/90% aims at 2.96%. Through is needed to turn our focus back on support at 2.98/3.00%, then 3.02/04%.

The technical analyst team is currently flat with no position on the 30-Year U.S. Treasury. Though, they may look for a short should the yield reach 2.80% with a Stop-Loss below 2.77% and a target of 3.00%.

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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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