As the debt crisis in Europe escalates supplemented by weakening U.S. economic data such as the Philadelphia Fed survey, U.S. Treasuries rallied across the curve in a flight-to-quality bid on Thursday. The yield on the 10-Year note fell 6 basis points to end the day at 1.70 percent. Since last week, the yield on the benchmark continues to march lower in a steady downward sloping channel after breaking through the intermediate sideways trend established in late September 2011, followed by the January 2011 low of 1.792.
Bond Trading – Technicals & Stochastics on 10-Year Treasury
As we mentioned in last week’s commentary, the 10-Year would seek the next layer of 1.675after surpassing these resistance levels. After today’s close, the yield is within 2 basis points and in spitting distance of that resistance barrier which is the low set in September 2011. Here the market could see a respite and/or selling pressures considering the yield pierced the lower Bollinger Band and is in oversold territory as indicated by both stochastic indicators.
Bond Trading – Bollinger Bands 10-Year Treasury
In the event of a sell-off, prior resistance is now current support. Beyond that, support could be found in early May’s high range of 1.965 percent. The 200-Day Moving Average at 2.015and the 2.035 percent which is the late April high, should act as near term support in the event of a bigger reversal. Beyond that, 2.14 percent is the late March low 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, 26 percent of all clients surveyed are bullish on rates, which surged on the week from 17 percent. The four week average for Bulls stands at 22 percent. Bearish clients fell by 2 to 15 percent which is near the past month’s average of 18 percent. 59 percent of all fixed income client, down by 7 percent from the previous week, are currently neutral on interest rates.
Bond Trading – JP Morgan Treasury Client Survey & 10-Year