Monday, August 10, 2015

Bearish Engulfing Surprises Treasury Longs

Ten year Treasuries have been straddling the middle ground between the weakness in the front end of the curve and the strength in the back end.  The Treasury yield curve between 2’s and 30’s narrowed from 257 basis points in mid-July to 209 bps this morning.  And while the 2’s-10’s portion of that spread accounted for 34 bps of that flattening, Ten year Treasuries seemed to have acted more as a rudder persuaded by the strength in directional moves.


With the front end of the curve trending sideway for the most part and the long end having enjoyed a reprieve from the Q2 selling, the 10’s last Monday broke above the late-May and early-July highs of 127-23 and 127-19 respectively.  Those gains have not held and while Friday’s gains brought the Monday’s high within sight, it failed to make needed headway. 


Sunday night found Treasuries opening slightly higher, but have since come lower with stronger equity and commodity performances.  TYU is testing support at the opening level from Friday (127-02) and a settlement below this level would create the aforementioned ‘bearish engulfing’ as a result of the combined trade on Friday and today.  We might view this as a further rejection of the new high from last Monday.   A bearish engulfing would suggest further losses forthcoming.



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