Treasuries Testing Support
Submitted by Nic Lenoir of ICAP
We are right back around the support zone in 10Y futures. At this point the Fed has done very little except talking about how it would maybe some day change policy, but until then the front-end catches a bid as soon as nothing happens. That's why for now all attention should be turned towards the 10Y future and the longer end of the curve where a sell-off based on USD weakness and rejection of low yields by investors to hold sovereign US debt could possibly be the trigger that forces front-end long out of their comfort zone.
The support zone is between 117-28 and 117-30. A break there would certainly lead us to 116-20, which will be the key intermediary support. We cannot make a bigger case of that 116-20 support, because if broken there is virtually nothing to hold us until 113-15, which is were you can potentially trigger a proper fire sale in US bonds. I don't think that last support is in any danger just now, but it is far enough away that testing it would be felt yield-wise and probbaly generate solid worries. Having said that on the downside case, for now we are holding the support zone, and the longer we consolidate around here the better the chances of going to re-test 119-23. As trading develops here it seems we are lacking a catalyst for the break, so we would probably trade the range, but one should not be stubborn on a break.
Good luck trading,