US Treasury Market – Key Technicals Tested Again

US10YR, Daily

Bonds are posting moderate losses as risk appetite picks up again, and the markets continue their chop. Treasuries are underperforming against European and Asian markets. The 2-year yield is 4 bps cheaper at 0.627%, with the 10-year up 5 bps at 1.405%, while the 30-year is 4 bps higher at 1.725%. The likelihood of a faster pace of tapering, the potential move up in rate liftoff, and the advent of supply are also pressuring. European bonds are in the red too, though more modestly with the Gilt and Bund 0.8 bps higher at 0.751% and -0.384%, respectively. Asian bonds rallied, with the JGB down 1.5 bps at 0.033%, while Antipodean rates closed over 3 bps richer. U.S. equity futures are mixed with the Dow 0.61 firmer and the S&P 500 up 0.21%, while the NASDAQ is -0.48% lower. There is still a lot of uncertainty over Omicron.

European bourses are higher paced by the IBEX’s 1.25% gain, while the FTSE is 0.98% higher and the DAX up 0.47%. The markets overlooked a plunge in German manufacturing orders and are pricing out a BoE rate hike next week. Asia was mostly in the red with the Hang Seng dropping -1.76%, while the Nikkei was down -0.36%, with the CSI -0.17% lower. Chinese shares were mostly weaker, taking a well telegraphed RRR cut from the PBoC in stride as regulatory pressures were back in focus, even as China’s securities watchdog tried to play down fears over the withdrawal of Chinese companies from American exchanges. Evergrande woes were back in the spotlight too with more coupon payments due this week. The US calendar is empty today and thin this week with CPI on Friday the star. Other data includes the final reading on Q3 productivity, the October trade report, and JOLTS. The Treasury auctions $112 bln in coupons, beginning with Tuesday’s $54 bln in 3-year notes. There is no Fedspeak scheduled until Chair Powell’s FOMC press conference on December 15.

Technically, the US10YR treasury remains weak and trades below the key 50-day moving average for a 72nd consecutive day, but continues to test this level from the underside for a 6th consecutive day, with 131.00 proving a key resistance level. The 20-day moving average was breached and broken on “Omicron Day” (November 26) and posted a new 17-day high on “NFP Day” Friday (December 3).  A breach and hold of the 50-day moving average could then test the November high and the 38.2 Fib level at 131.75, 132.00 and then the 50.0 Fib level at 132.45. Should the 50-day moving average resistance hold,  again, then short-term support could be found at the 23.6 Fib (130.90), the 20-day moving average at 130.65, 130.00 and the November low at 129.50.



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Stuart Cowell

Head Market Analyst

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