Fixed Income Markets, Technicals

Treasuries’ Pullback Struggling for Momentum

Treasury Note (10-Year)

Treasury yields have picked up over the past two weeks; but the bearish pull in 10-year Treasury Note futures has been relatively constrained when compared to the performance of the US dollar or Dow. A higher time frame chart shows there is a bullish underlying trend still in place starting with the trendline that began in late June of 2008 and has since notched confirmation in October and June of this year. However, this is a relatively loose level. Therefore, if there is a break below the 115-27 range low that has stood as support for the entire month (and offers a minor potential head-and-shoulders formation), there could be a short-term break and run to the next level of support at 114. A rebound on the other hand would initially target 118.

UK Gilt (10-Year)

Gilts have finally overrun range support at 116.50/00 that has stood as a floor for the UK debt market since November. This move confirms the tenacity and consistency of the bearish trend channel that has maintained the market’s pace since the March reversal. From a technical perspective, this past week’s bearish break was significant and could be considered the breaking of a neckline on an extended head-and-shoulders formation. However, the follow through on this technical shift (at least initially) has been relatively restrained. There is a notable 50% Fib of the last major bull wave around 115.00/25; but this lacking breakout has more to do with momentum. Should there be a successful test and rebuff of resistance founded in the former range support (which coincides with the top of the bearish trend channel over the past four months), it would suggest a steady downtrend.

German Bund (10-Year)

The Bund’s bullish break above 121.50 lasted for a little more than a week before the floor once again dropped out from underneath bulls. A look to the daily chart shows a clear and deliberately formed reversal; but the progression on the decline has been choppy. Now, a familiar level of support comes into view in the 120 pivot that acted as resistance between May 25th to June 19th – which also happens to be the mid-point of the June rally and 38.2% retracement of the larger July 2008 to March 2009 advance. A weekly view of this market shows a lack of regard to even clear levels like these; but should broader market activity remain constrained, this floor may hold up.

Japanese Government Bond (10-Year)

Rarely does the benchmark 10-year JGB bond futures contract respect a technical a distinct technical level. Oftentimes, a clear level of support or resistance is warped and bent before momentum takes off in the opposite direction. However, the low-hanging support at 139 (there was a more absolute high in the range from 139.30/50) proved itself to be a clear barrier to price action. The subsequent retracement from these highs is much more restrained that the June rally – suggesting it could be ultimately be a correction in a more progressive advance. Short-term support is seen around 138; but the next significant floor is not noted seen until 137.25 (a notable pivot and short-term 50% Fib retracement.

Written by: John Kicklighter and Jamie Saettele, Strategists for CFDTrading.com
Questions? Comments? You can send them to jkicklighter@cfdtrading.com