Treasury Prices Stabilize after Strong Jobs Report
Today’s Spotlight Market
Speculators have been adding to their net-short positions in 10-year Note futures with the most recent Commitment of Traders report showing non-commercial traders (large speculators and commodity funds) adding just over 9,500 new net-short positions during the week ending December 3rd.? However, it was the non-reportable traders (usually small speculators) where the net-short position really grew, with an additional 56,222 contracts added. This was prior to Friday?s unemployment report and may account for the recent rally in treasury prices as weak bears covered short-positions once commercial buying entered the market. ?
Fundamentals
This past Friday?s U.S. Non-farm payrolls report (NFP), which showed that 203,000 jobs were created in November, sparked a brief but severe sell-off in Treasury futures with the 10-year Note yield surging over 2.93% for the first time since September. Market participants now seem to believe that the Federal Reserve will begin its tapering of bond purchases possibly as early as this month, although some time in the 1st quarter of 2014 is the most likely time frame for the Fed to begin removing some of its monetary stimulus.
However, bond traders seemed to have somewhat a change of heart over the weekend and the 10-year note yield fell below Friday?s lows as renewed buying interest emerged, especially from foreign buyers, as yields approached 3%. It appears that traders have now resigned themselves to the fact that the Fed will begin to taper its bond purchases in the coming weeks, but low inflation readings will allow the Fed to keep short-term interest rates low for quite some time.
It is also likely that the recent increase in price volatility for the Treasury complex may begin to ease as analysts now believe that the Fed will be conservative in removing monetary stimulus and any tapering of bond purchases will occur gradually as Fed members? will want to prevent any yield ?spikes? that could derail the still fragile economic recovery.?? ?
Technical Notes? -? View Today’s Chart
Looking at the daily continuation chart for 10-year Note futures (front month TYH14), we notice the ?spike? lows generated after the NFP report on Friday corresponded with a test of oversold levels for the 14-day RSI. Once 10-year prices recovered, fresh buying emerged as it appears that there is strong buying support starting to emerge as yields begin to approach 3%.?
Despite the recent rally, it appears that the intermediate trend now favors the bears as prices remain below the 20 and 200-day moving averages as well as prices remaining below the intermediate uptrend line drawn from the 2007 lows. For long term traders and investors, this bull market in treasuries remains in force and would take a monthly close below the 110-00 price level (4.722% yield assuming a 6% coupon), before one could reasonably call an end to this historic bull market.
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