Treasury Yields Drop On Equity Panic
Today’s Spotlight Market? -? The Treasury markets got a huge boost from disappointing economic data from Europe and the US, along with weaker equity prices on the data. Equities got absolutely pummeled early in yesterday’s session, before paring losses going into the closing bell. Traders are concerned that the slowness in Europe and Asia could hamper growth in the world’s largest economy. Traders have been encouraged by recent economic data, including the lowest jobless rate in 6 years. Recession is not the main concern, but rather, traders are concerned that the rest of the globe could make the economy fall short of its potential. Certainly, the Ebola virus fears played a small, but not insignificant, part in yesterday’s weakness and will continue to be on the minds of traders for some time, given the 15-20 day gestation period for the illness. A larger scale outbreak in the US could have crippling short-term effects on the economy.
Fundamentals? -? Bond traders have drastically changed their rate outlook over the course of the past 2 weeks plus.? On September 30, Fed Fund futures were pricing in a 78% chance of a Fed rate hike by September 2015. That has dropped to less than half of that, estimates the futures are now only pricing in a 36% chance of a rate increase over the same time frame. The yield on the 10-Year Note fell to 1.86% during yesterday’s trading session. Yields on Notes have fallen sharply over the past 8 days, suggesting maybe yields may have fallen too sharply, too quickly. The yield on 10-Year Notes closed the session at 2.08%, the lowest level since May 2013. This can be seen as overdone given the improved state of the US economy now.
Technical Notes? -? View Today’s Chart
Tuning to the chart, we see the December 10-Year Note contract breaking through continuous chart resistance near the 126-15 level.? Prices have flirted with weekly resistance at the 130-07 level before falling back.? The 14-day RSI is now over 90, which can be seen as extremely overbought.? The 10-Year is now also trading above the 100-week moving average.
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