Download the Schwab app from iTunes®Get the AppClose

  • Find a branch
To expand the menu panel use the down arrow key. Use Tab to navigate through submenu items.

Looking to the Futures

Line in the sand for Bond bulls

Fundamentals:

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.

Technicals:

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

     

Schwab has tools to help you mentally prepare for trading

Learn more >

Talk trading with a Schwab specialist anytime.
 
Call 888-245-6864
M-F, 8:30am - 9:00pm EST

Get 500 Commission-Free Online Equity and Options Trades for Two Years

Learn More >

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.

Hedging and protective strategies generally involve additional costs and do not assure a profit or guarantee against trading losses.

Futures trading offered and positions held through Charles Schwab Futures, Inc., a separate but affiliated company of Charles Schwab & Co., Inc. Both are subsidiaries of The Charles Schwab Corporation. Futures trading involves substantial risk and is not suitable for all investors. Please read Risk Disclosure Statement for Futures and Options.

Charles Schwab & Co., Inc. (“Schwab”) (Member SIPC) and Charles Schwab Futures, Inc. (“Schwab Futures”) are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation. Nothing here is an offer or solicitation of securities, products, or services by Schwab or Charles Schwab Futures in any jurisdiction where their offer or sale is not qualified or exempt from registration.

Charles Schwab & Co., Inc., 211 Main Street, San Francisco, CA 94105

©2018 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

(0918-845N)

Thumbs up / down votes are submitted voluntarily by readers and are not meant to suggest the future performance or suitability of any account type, product or service for any particular reader and may not be representative of the experience of other readers. When displayed, thumbs up / down vote counts represent whether people found the content helpful or not helpful and are not intended as a testimonial. Any written feedback or comments collected on this page will not be published. Charles Schwab & Co., Inc. may in its sole discretion re-set the vote count to zero, remove votes appearing to be generated by robots or scripts, or remove the modules used to collect feedback and votes.