Friday, March 13, 2015

Ten Year Treasury Advance May Be Losing Momentum

Eurodollar and Treasury futures are lower this morning following a blunted response to weaker retail sales figures on Thursday.  The Eurodollar curve is lower and more steeply sloped throughout the first 7 years and the Treasury curve is lower in a somewhat parallel shift.  Open interest rose yesterday in all but the two year Treasury as Treasury 5’s-30’s yield spread pushed out 2 bps and the Eurodollar futures yield curve flattened through the first 5 quarterly contracts and flattened thereafter.    

Yesterday 10 year Treasuries reached toward the higher levels of early this month just below 128-00, but failed to hold to inter-session gains and in failing, created a bearish ‘shooting star’ reversal.  Early week gains on both Monday and Tuesday were strong and recaptured nearly the entire decline from last Friday’s employment report.  Wednesday’s gains were smaller however and yesterday’s price action appear to indicate that the slight bullish momentum built out of marginally oversold conditions into Friday’s close may have evaporated.

Interestingly, TYM5 did hold enough of yesterday’s gains to settle above a trend line dating from early February and intersecting with a high from late February (chart).  We should give more attention to this if settlement today is maintained above that trend (127-00 or better). 

Otherwise, Friday’s lately have had more bearish surprises than flight to quality trade and we will look with interest to both price measures in the PPI report and the sentiment numbers in the University of Michigan sentiment figures for guidance.  

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