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Looking to the Futures

Line in the sand for Bond bulls


The direction of U.S. Treasury Bond prices has reached a critical juncture as 30-year Bond yields approach 3.25%. We have to go back to late September 2014 before we find 30-year Bond yields trading above 3.25%, having peaked at 3.28% on September 24. Since that time we have seen Bond yields fall to as low as 2.11% in July 2016, which continues to stand as a potential major top for Bond prices. So what are some of the reasons being attributed to the recent rise in rates?

First, we have what appears to be a rather “hawkish” Federal Reserve, which is expected to once again raise the Fed Funds rate by 25 basis points next week.  While the Fed has a direct effect on the short-end of the yield curve, traders may be unwilling to aggressively buy the longer end of the curve while the Fed appears to be in a tightening mode.

Next, we have seen signs that major foreign buyers of U.S. Government debt have been reducing their holdings of U.S. Treasuries, most notably Japan, which has seen its holdings fall to their lowest levels in 7 years. China, which is currently engaged in trade disputes with the U.S., has also reduced its U.S. Bond holdings of late.

Finally, despite concerns that escalating trade tariffs will eventually become a major drag on the U.S. and global economy, the U.S. equity markets continue to trade near all-time highs, which may be keeping investment assets flowing into stocks despite higher rates on U.S. Bonds.


Today we are going to take a longer-term look at the Treasury Bond futures market by analyzing the weekly continuation chart for the past 5 years.

This week’s low of 139-24 was the lowest print seen for the lead month contract since October 2014, as the cash bonds are making an attempt to trade above major resistance at a 3.25% yield.  The September sell-off in bond prices has the market trading below both the 20 and 200-week moving averages which tilts the market in favor of bond bears. The 14-week RSI has turned lower but is currently holding above oversold levels with a current reading of 34.18. We currently do not see any significant support on the weekly chart until the 135-13 level, which last occurred back in September 2014. Should the market attempt to form a near-term bottom this week, we see weekly resistance at the late January 2018 high of 148-29.


Option Information:

Implied volatility for December Treasury Bonds is currently near 6.63%, which is near the average range for the past 20-days but near the low end of the historic volatility range.  Low implied volatility levels tend to favor strategies that involve being long option premium.

Contract Specs: December 2018 Treasury Bonds


Trading Calendar:

Cattle on Feed Report: 3:00 p.m. ET

Last Trading Date: Sep Stock Index futures

Last Trading Date Options: Sep Stock Index, Oct Treasuries, Grains & Orange Juice


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