Thursday, April 14, 2016

Ten Year Treasury Future Update



In our last review of TYM on Tuesday (Apr 12), we noted a condition change in the modest, but well defined, multi-week bullish advance.  Following a most spectacular advance of late-December to Feb 11, that attracted a bullish participation well above the average of the last 5 years, there would be many who had and possibly still have great expectations for this more recent advance. 

Following only 7 new highs without a three session pause, the April 7th (131-09+) high marked advance was (thus far is) nearly as unspectacular as its predecessor had been extraordinary.  Participation had been lacking and volume was only modest.  Still more generally, the asset class attracted a minimum of attention outside needed portfolio hedging. 

CFTC described ‘non-commercial’ accounts are as short in 10 year Treasury (fut & opt) as they have been since early November.  At that time, price action was consolidating into year-end prior to the earlier noted outsized Treasury gains that pushed 10 year Treasury yields 65 bps lower from 2.3%.

Since the March 23rd low (128-20) the contract has added 200,000 in open interest which provides some fuel for more exaggerated movement than seen more recently.  However, the current level of open interest at 2.8m is well below the 3.1m reached at Feb 11th price peak.  Open interest and positioning data tend to support the notion that the current level of participation is not in itself sufficient to support a yield change of much more than a 10 basis point move in either direction.  Of course, this does not preclude a market event that changes perceptions enough to attract additional attention and positioning interest. 

Candlestick analysis suggests that the modest advance from the March 23 low ended after only 7 new highs with a ‘bearish harami’ that has been confirmed by subsequent price action.  The break below the rather tightly defined bullish channel further supports a near-term bearish prognosis. 

The overriding technical formation remains the Feb 11th bearish ‘shooting star’ that marked a near 3 year high on the rolling active Ten Year Treasury contract.  The dramatic confirmation of that technical reverse in the days following that formation helps to mark its importance.  Note again that the most recent advance found resistance at the base of the ‘shooting star’.   The April 7-8 ‘bearish harami’ capped a 2.67 point advance.  Recent bullish developments are more absent.  The latest significant such developments were mid and late-March ‘bullish engulfing’ patterns.  Still, we should not so quickly forget the power that was behind the January bullish advance.  That advance continues to influence sentiment.             




 




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