Prompted by a weakening employment picture in the U.S. and rising concerns over Greece’s willingness to stay the course of austerity, Treasuries continue to rally in a flight to quality bid as the yield on the 10-Year declined by 8 basis points to 1.85 percent as of Wednesday’s close. Toward the end of last week, the 10-Year was reaching stiff resistance at 1.88 percent heading into Friday’s employment report. With the weak and disappointing reading, the yield on the benchmark broke through recent intraday ranges and the intermediate sideways trend line established in late September 2011. The breakout was confirmed as past resistance became support with the 10-Year reaching an intraday low of 1.823 percent before selling off to close at 1.87 percent to open the week.
Bond Trading – Technical on 10-Year Treasury
With the breakout and as mentioned last week, the 10-Year has been probing lower in a flight to quality bid touching a low of 1.792 percent nearing the recent lows set in late January 2012. Beyond this level could prove to be further stiff resistance as sellers may emerge given the overbought readings in both stochastic oscillators and Bollinger Bands. Beyond that, 1.67percent would be the next layer of resistance which is the all-time low touched in September of 2011.
Bond Trading – Bollinger Bands and Stochastics
In the event of a sell-off, short-term support could be found in last week’s high range of 1.965 percent. The 2.03 to 2.05 percent range, which is the late April high and the 200-Day Moving Average, should act as near term support in the event of a sell-off. Beyond that, 2.14 percent is the late March which was breached with the gap down from the March Non-Farm Payrolls release on the first Friday of April. Intermediate support is 2.395 percent which is the highs set in late March.
According to JP Morgan’s most recent Treasury Client Survey report, 17 percent of all clients surveyed are bullish on rates, which declined on the week from 23 percent. The four week average for Bulls stands at 22 percent. Bearish clients were unchanged by remaining at 17 percent which is near the past month’s average of 19 percent. 66 percent of all fixed income client, up by 6 percent from the previous week, are currently neutral on interest rates.
Bond Trading – JP Morgan Treasury Client Survey & 10-Year