- There are major news events this week that could move the interest-rates markets, including a potential Fed chair announcement and the jobs report.
- In a note Friday, Nomura analysts said "traders need to be mindful of catapult risk" that could push bond yields higher.
- Besides the market-moving news, Nomura observed some technical indicators on the 10-year yield chart that point to a move higher, including a likely soon-to-happen "golden cross" pattern.
The week ahead is full of major news for the US economy and markets.
President Donald Trump could announce his nomination for Federal Reserve chair any day now, the Fed meets on Tuesday and Wednesday, and Friday is jobs day.
All this, along with a few technical indicators, set up interest rates for a move higher that shouldn't catch traders off guard, according to a team of analysts at Nomura.
"The Fed Chair news is exciting enough but the next week is full of other key events as well," the analysts, including George Goncalves, Nomura's head of US rates strategy for fixed income, wrote in a note on Friday.
"We will continue to see tax policy updates. There is a Fed meeting on the same day as the UST refunding release. Given the speed of tax policy efforts, the risk is Treasury alludes to more issuance needs (and not just bills) for the back-half of the quarter. Lastly our US economists expect a very large NFP payback and forecast a 350k headline print. If such data line up with other hawkish outcomes, technicals should catapult rates higher."
Aside from the news expected to come this week, the Nomura team is also paying attention to some technical indicators in interest rate charts.
One indicator Nomura is watching is a potential "golden cross" pattern in the 10-year-yield chart. This occurs when the 50-day moving average rises above the 200-day moving average — the short-term average crosses the long-term — which suggests a bullish turn in the trend.
They forecast that the 10-year yield moves towards 2.6% by year-end; it was down 4 basis points at 2.39% on Monday morning.
"US data have been improving and sentiment is high, so long as that remains the case, we can see rates grind higher," Goncalves said. "Just mathematically speaking, it doesn’t take many days into November before the classic golden cross of the 50-day moving average crosses over the 200-day. Given how some in the marketplace respect these types of triggers and momentum strategies have been driving price action, we do not think the dip buyers would be able to hold back the selling pressure from the CTAs/algos."
If President Trump nominates John Taylor, whose record on monetary policy is hawkish, to replace Janet Yellen as Fed Chair, the 10-year yield could "easily" go above 3.25% over the next year, Goncalves said. "If the President goes with continuity (via Powell), we only see 10s rallying 5- 7bps as the Fed is still hiking and that won’t change with a status quo decision."