A Bounce Higher At Resistance Is Opportunity For Lower Yields

Since the rip down in yields where resistance levels were broken, the yield on the 10-year has been oscillating back in forth in a tight range the past several days. At 1.65% and right above a bigger barrier at 1.63/1.62%, the 10-year U.S. Treasury remains at a critical juncture.

Credit Suisse technical analysts David Sneddon, Christopher Hine, Pamela McCloskey, and Cilline Bain anticipate sellers to emerge at the 1.63/1.62% level which may drive yields higher in the near-term. However, they expect an eventual break lower after that. In Credit Suisse’s latest U.S. Fixed Income Daily, they provided the following color on where the 10-year may trade:

10-year US yields continue to mark time just above better resistance at 1.63/62% – the 50% retracement of the recent sell-off. We allow for this level to hold further. However, while 1.71% minimally holds the immediate bias is for a break lower to 1.56/55% ahead of 1.45/44%. Removal of the latter would re-open a retest of 1.38/35%.

Above 1.71% would aim at 1.76% with firmer levels at 1.78/80%. We look for the latter to hold and the rally to commence from here. Only above risks a retest of the 1.86/89% support.

Currently, the research team is sitting on the sidelines but look to add should the 10-year reach 1.75% with a Stop-Loss above 1.80%. The target is for 1.63% or a 12 basis point gain.

As for the Long Bond currently trading at 2.76%, the focus is on the next bigger barrier set at 2.71%. If the 30-year Treasury trades below, the next stop could be a surge lower to 2.65%.

30-year has pressed back to last week’s yield lows which leaves the immediate focus on a bigger test at 2.71% – chart and the 50% retracement hurdle. We allow for this to hold again for a bounce. Below, though, would see a more extended rally in the range to 2.65% with a bigger chart barrier at 2.505%.

Above 2.83% is needed for a bounce to 2.85/86% with scope to range support at 2.89/90%. We look for the latter to hold and the recovery to resume from here. Above is needed to retest 2.955/985%.

The team of technical analysts is looking to buy at 2.85/2.86% with a Stop-Loss above 2.90% with an eventual move of 13 basis points lower for a target of 2.72%.

The current on-the-run 30-year U.S. Treasury (2.75% Coupon Maturing August 15, 2042 CUSIP 912810QX9) has a duration of 20.2 years. So for a 13 basis point decline, the percentage price gain for the bond would be 2.6% on a one-time levered basis.

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