Thursday, May 28, 2015

Saying Goodbye to June Treasuries

We are preparing to say goodbye to the June Treasury Futures and welcome in the September contract as roughly 70% of the ‘roll’ has been completed and all but a scant few positions will remain in June at day’s-end.  Looking back over the last few months shows some interesting developments leading to current conditions.

The yield jump in Treasuries beginning in late-April was assumed by many to be largely related to reversing long-rates in Europe (see Apr 21; ‘Bund Taking U-Turn at Zero Yield?’).  The set-up in ten year Treasury futures was signaled by a bearish head and shoulders (see Apr 22; ‘Ten Year Treasuries - Another Go, This Time with a Head and Shoulders’).  This pattern achieved its bearish objective in early-May and subsequent lows produced a series of bullish patterns.


The result of early-May bullish formations has not been particularly rewarding for the bullish contingency and TYM currently struggles near the mid-May 128-04+ high.  Overnight price action advanced TYM to 128-01 and the contract stands relatively unchanged from yesterday’s 127-28+ settle.


Some might look to the recovery from declining price action in yesterday’s recovery from intra-session declines as encouraging.  I would argue that the bullish contingency has had little success in advancing prices and failed to do so again yesterday.  The ‘doji’ formed with similar 127-28+ opening and closing levels is an indication of indecision.  I believe this indecision should be charged against the bullish contingent as it occurs near 1 month highs.


Claims data has been strong and we are updated on that series again this morning (Bloomberg survey estimate for initial claims 270K v. last at 274K).  I suspect that a mildly weaker than expected report will be excused while a strong report will find longs exiting positions.      



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