Bond Run Not Done?
Today’s Spotlight Market
Market participants in the Fed Funds futures market have lowered their expectations for another Fed rate hike at the March Federal Open Market Committee meeting (FOMC) to 37% according to the March 2016 Fed Funds futures contract. The odds were above 50% at the end of 2015, which was prior to the steep sell-off in global equity markets that has been attributed to slowing growth in China and slumping Crude Oil prices. It is not until the June 15 FOMC meeting that traders have priced in an above 50% chance of another rate hike.
Fundamentals
The historic bull market run for U.S. Treasury Bonds will not go quietly into the night, as prices appear poised for another test of recent highs. It appears that fixed income traders are concerned that the U.S. will follow the lead of China, which is experiencing slower economic growth as the world?s most populous nation moves towards a consumer orientated economy. The wild price swings seen in global equity markets have also made investors nervous, which has benefited the long-end of the yield curve as funds move towards the relative ?safety? of U.S. government bonds. Even the number of interest rate hikes in 2016 from the Federal Reserve is coming into question, as analysts question the Fed?s desire to continue to raise the Fed Funds rate while inflation remains muted as commodity prices, and especially Oil prices, trend lower. Further Fed rate hikes could help to strengthen an already strong U.S. Dollar, which is already causing difficulties for U.S. multi-national corporations, who are seeing earnings suffer from overseas sales. Only in hindsight will we know if we are actually in the late stages of the 30-year plus bull market for Treasuries. Trying to pick a top has proven to be a very difficult exercise, and short-covering rallies by weak hands in the Treasury market appear to be the fuel that may keep the uptrend in force for a while longer.
Technical Notes? – View Today’s Chart
Looking at the weekly continuation chart for Ultra-bond futures, we notice prices breaking out to the upside from the symmetrical triangle technical formation.? This pattern is considered a consolidation pattern, with the recent upside breakout appearing to be a signal that the uptrend is ready to resume. The only negative seen on the price breakout is that trading volume was not above average, which may increase the possibility of a false breakout. Prices are above both the 20- and 100-day moving averages, and the 14-week RSI has turned positive, with a current reading of 58.45. 168-05 is seen as the next major resistance level for the front-month futures, with support found at 150-08.??
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