Treasury Yields Fall Despite Signs of Rising Inflation

Today’s Spotlight Market
While U.S. Treasury prices continue to trend higher, U.S. equities are struggling with the e-mini S&P 500 falling nearly 40 points since making all-time highs earlier this week. There has been some talk among traders that U.S. equity prices may have become rich given current economic growth levels. Slower global growth could affect corporate earnings, especially for multi-national corporations, which rely on non-U.S sales for a large portion of their profits.


Bond traders are in a quandary, as recent data seems to be suggesting that the inflation rate may be on the upswing at the same time that economist?s are questioning why global economic growth seems to be stalling. It appears that sluggish growth is winning the battle for the direction of Bond prices as 10-year Note yields have fallen to levels not seen since October of last year.

Many analysts were expecting Treasury yields to rise as the Federal Reserved continued to ?taper? back on its bond purchases, as well as forecasts calling for U.S. GDP to rise above 3% this year. This belief led many traders to establish short positions in U.S. Treasury futures in anticipation of falling Bond prices as the economy gained steam. However, Treasury futures prices have not only failed to retreat but the Front month June 10-year note futures are now trading at its highest levels for the year in what appears to be a rather severe bout of short-covering as yields fell through 2.50%.

Not even higher readings for both the Consumer Price Index (CPI) and Producer Price Index (PPI) could stop the onslaught of buyers in Treasuries of late. It appears that the focus of traders has turned back towards Europe, where additional stimulus measures may be enacted by the European Central Bank (ECB) due to stagnant growth on the European continent.? The benchmark German 10-year Government Bond yield has fallen 1.30%, which is the lowest rate of the year and in turn may be drawing additional buyers into the U.S Bond markets, which are currently yielding over 1% above its German counterpart.


Technical Notes? -? View Today’s Chart
Looking at the daily chart for June 10-year Note futures, we notice what may be an upside breakout from the two month long consolidation pattern where prices were holding within a 2-point range. The recent price rally is adding confirmation to the rounded-bottom formation that appears on the daily chart. Prices are above both the 20 and 200-day moving averages and the 14-day RSI is strong, having just nudged above 70 with a current reading of 72.03. 126-16.0 is seen as the next resistance level for the front month 10-year Note futures, with support found at 123-16.0.



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