"Get ready to change your thinking on US Treasuries. The larger bear trend is set to emerge," is the ominous warning from BofAML's MacNeil Curry. As yields keep tumbling lower, he believes, US Treasury yields are either testing or fast approaching levels from which we should see a base and eventual resumption of the larger, long-term bear trend.
As BofAML explains...
US Treasury yields are either testing or fast approaching levels from which we should see a base and eventual resumption of the larger, long-term bear trend (or, in the case of 2s, a push to the 1yr contracting range highs). In 30yr yields, the zone to watch is 3.280%/3.253%, in 10yr yields the zone is 2.420%/2.346%, while, in 2s, the basing zone was 32bps (Our outlook on 2s HAS NOTHING TO DO WITH THE ROLL - the evidence developed on the May-20 reversal from 32.3bps). Even in 5s, further yield weakness should not break below the Feb-14 low at 1.420%, before resuming higher.
[4]
This is a stark reassessment of our initial thought process, where we thought 5s could fall to 1.224%/1.248%. However, price action in both 5s and the rest of the curve says that is NOW VERY UNLIKELY. Back above 1.556% in 5s confirms the base and turn.
[5]
Meanwhile, FOR NOW, in 30s, bears regain control on a break above YTD trendline support (3.443%), while, in 10s, bears need a break above 2.568% (the old Feb-04 low).
NOW, at this stage, we are not advocating going short, but YOU MUST GET READY. THE LONG-TERM BEAR TREND IS POISED TO EMERGE FROM HIBERNATION. Unfortunately, $/¥ bulls should remain very cautious, absent a break above 102.69, preferably the early April highs at 104.13. The risks remain to the downside for a closing break of the 200d (101.38/39), to 99.37 and, potentially, below.
[6]
Yes, we are looking for a breakdown in the positive correlation between $/¥ and US Treasury yields.