Bears Confounded As Treasuries Rally

Today’s Spotlight Market
U.S. Treasuries received an addition boost late Wednesday after the U.S. imposed additional sanctions against Russia for its continued involvement in Ukraine. This increase in political tensions has triggered renewed buying interest in both U.S. and German Bonds, and once again confounding the analysts who keep calling for a top in the U.S. Treasury market.


Treasury Bond traders appear to believe Janet Yellen, that the Federal Reserve is not in any hurry to pursue a tightening of monetary policy, as Bond prices seem to be holding steady despite signs of an improving employment picture. Not even a better than expected Non-Farm Payrolls Report for June or a larger than expected rise in CPI last month appears to have swayed the Fed Chairwomen that keeping rates low for an extended period will keep U.S. economic growth on its current moderate upward progression.

Bond yields moved little following the release of the Fed beige book on Wednesday, which describes U.S. economic conditions among the Fed?s twelve districts. Here the term ?moderate growth and expansion? were used to describe economic conditions throughout the Fed districts, with particular notes describing growth in consumer spending, especially in auto sales and tourism the past several weeks. Housing was mentioned by several districts as a potential headwind, as home sales were down from last year?s levels in several parts of the country.?

It appears the biggest movement for the interest rate market is in the yield curve, where the yield on the 5-year note has narrowed sharply vs. the long term 30-year Bond rate. This flattening of curve appears to be a sign that Bond traders believe the Fed may begin to raise short-term rates sooner than expected, although the overall rate of tightening will be moderated. Longer-term Treasuries may also be receiving a boost from the accommodative monetary policies by both the Bank of Japan and the European Central Bank, which is having the effect of making U.S. long-term Bond yields look attractive to foreign buyers vs. the sub 2% yields that can be obtained from Japanese and German government Bonds. ?


Technical Notes? -? View Today’s Chart
Looking at the daily continuation chart for Treasury Bond futures, we notice prices in a moderate upswing, currently trading at price levels not seen since May 30th. Longer-term traders will note that the uptrend line drawn from the June 2007 lows has not yet been tested this year, so it is curious how anyone could be calling for a bear market in Bond prices until this key support indicator has been invalidated. Prices are above both the 20- and 200-day moving averages, and the 14-day RSI is reading a moderately positive 57.09. 139-03 is seen as the next resistance level for Sept. Bonds, with support found near the 134-11 area.



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