Bond Prices at 2013 Highs but Becoming Overbought?
???? Today’s Spotlight Market
After forming what appears to be a head and shoulders bottom on the daily continuation chart, Treasury Bond prices are hovering several points above the “neckline”, although a further-up move in prices is being hampered by this week’s Treasury auction and rising equity prices. Cash movement into U.S. Treasuries may be coming from outside the U.S.– especially from Japan — as the BOJ’s aggressively accommodative monetary policies are forcing domestic investors to search for yield outside the country, with the U.S. in the forefront due to its higher yields and “safe-haven” status.
???? Fundamentals
Those pundits writing off the U.S. Treasury bond market have been proven wrong once again, as yields have fallen to their lowest levels of 2013 on concerns that global growth may continue at a sluggish pace. China’s purchasing managers index slipped last month to a reading of 50.5, vs. 51.6 in February. Although readings above 50 are considered expansionary, slowing growth prospects become more troubling when paired with weaker data from both the U.S. (52.0 in March, vs. 54.6 in February) and the Euro zone (46.5 in March). U.S. durable goods orders in March fell by a larger than expected 5.7% last month, adding to concerns about a slowdown in economic growth.
U.S. Treasury prices are also receiving a boost by aggressive monetary policies put in place by the Bank of Japan, which include a plan to aggressively purchase its own government debt. This is sending Japanese investors into U.S. Treasuries, as their currently paltry yields still look attractive vs. what can be obtained in Japan.
We are also starting to see some shift of opinions on the current austerity measures seen in Europe, as the prospects of a deepening recession on the continent have some policymakers considering moving to more accommodative monetary policies, including interest rate cuts, such as that being followed by the U.S. and Japan, to hopefully jump start the beleaguered economies of Europe.
Though it appears that Bond bulls have regained the upper hand, we could be in for some increased volatility as the market digests a fresh supply of Treasuries totaling 99 billion dollars that hit the market this week. The auction of 35 billion worth of 5-year notes on Wednesday saw strong foreign participation once again, with these short-term notes yielding 0.71%. This is the lowest yields have been since November, and may be viewed as a sign that there is still demand in the shorter-end of the yield curve, despite current low rates.
???? Technical Notes
Looking at the daily continuation chart for Treasury Bond futures, we notice that prices have turned choppy after a nearly 9-point rally since early March. Prices are holding above both the 20 and 200-day moving averages (MA), keeping both longer and shorter-term Bond bulls in the driver’s seat.
The 14-day RSI is fairly strong, with a current reading of 60.13. The next resistance level is seen at the “spike” high made on April 23rd at 149-06, with support found at the 200-day MA, currently near the 147-12 price level.
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