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US 10's Are Very Close To Rolling Over - In Rate And Also The Bears

Published 15/03/2018, 01:37 pm
Updated 06/07/2021, 05:05 pm

Originally published by AxiTrader

Fed chair Jerome Powell was hawkish recently with an upbeat view on the economic outlook. Headwinds are tailwinds we've been hearing from the Fed recently. Economists are now thinking one hike in March and then likely 3 more this year.

And of course US non-farm payrolls shot the lights out with a print of 313,000 new jobs in February.

Yet US 10's didn't sell off. Indeed this morning after an as expected CPI two nights ago and after retail sales in the US printed negatively 10-year Treasuries traded down to a 6 week low last night of 2.80% and look like they could break substantially lower if 2.78% trades.

Now, it's not supposed to be that way. The focus was on 10's heading to 3% and above.

Chart

But as with everything in markets positioning is often key and the speculative community has as big a net short on as they have had for not just the past 5 years but this century. That means there are not a lot of position limits available for further selling.

And as Tom Demark says, tops and bottoms are formed when we see an absence of buyers and sellers. Inverting that because the price of a bond moves inversely with its yiled what that translates to is if the market is very short 10's then we see an absence of sellers and the chance of a reversal and rally.

Chart
Source: Investing.com

So in my best John Wayne voice - when I look at the daily or weekly chart of the US 10-year rate I have to ask, "is that a top I see before me'?

A break of 2.80% would suggest a move to 2.7% which is just a garden variety 38.2% of the move higher in rates since early December. Given positioning and stocks starting to drift a move to here perhaps even 2.63 or 2.55% is possible if we continue to see the drift in US and global data that we've seen in recent weeks.

And if US bonds are rallying it will suggest that things are far from rosy in other markets like stocks and commodities.

I'm still 70% to see February's stock lows taken out in the months ahead.

Have a great day's trading.

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