Wednesday, April 22, 2015

Ten Year Treasuries - Another Go, This Time with a Head and Shoulders

The U.S. ten year Treasury trades similar to the way it did on the 10th of this month, just before prices recovered a point.  It had appeared at that time Treasuries were ready to fall further, extending a retrace of the strong March advance.  Instead, Treasuries rebounded the following Monday on heightened Greece concerns and scored an advance of more than a point into the high on Friday last week. 

At present, the pullback from the recent high (129-31) is smaller than seen following the April 3 high of 130-04, though conditions once again seem to exist for a more dramatic decline.  Volume has been quite low, despite a sizeable concentrated selling period mid-morning yesterday. 

I have drawn a possible head and shoulders pattern that would have a ‘neck line’ intersect trade today at 128-26+.  A settle below that neckline would suggest a trade near 127, equivalent to a yield of 2.22% from 1.92% now.  

Otherwise, my base case is for employment to remain somewhat consistent with near 200K monthly jobs gains and slowly improving broader U6 conditions.  Additionally, the decline in nfp in March is seen more as a ‘catch-up’ from Q1 weakness in production.  Finally, consumer sentiment remains favorable and pent-up demand should prompt a better series of retail sales numbers.  This all adds to greater discussion of Fed starting its ‘normalization’ of monetary policy.           

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