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Are Rates Heading Higher? US 10-Year Note Technicals: 12/19

by on December 19, 2013 5:49 pm BST
 

Treasuries fell for a second day as the Federal Reserve issued a $10 billion taper from their $85 billion in monthly asset purchases. The US 10Y treasury note is currently at 2.928 percent and down from session highs of 2.95 percent, a high since September 13.

Sean Murphy, a trader at Societe Generale, said “the front end is intact, but the question of when the Fed will raise rates is having some impact on the belly.” The spread between the two- and 10Y notes widened to a July 2011 high of 258 bps.

A Fibonacci retracement of the yearly high-to-low, price action clustered around and rejected at the 78.6 percent level as bond traders were uncertain of the outcome prior to yesterday’s FOMC minutes meeting and Fed announcement. Price action reacted strongly and trading lower to 123’190 price action support. There is potential of price action to retest the yearly lows, pushing the 10Y note back above three percent. A break and close below current support will strengthen this outlook.

1D Chart of ZN (10Y Futures)

1D Chart of ZN (10Y Futures)

Forecasting out, the daily chart of 10Y note futures (extended out four years) shows support for the 10Y at 123 and the yearly low of 122’070. However, if asset allocation transfers from bonds into equities or bond traders further loose faith in the Fed policy, the 10Y could head lower.

Price action in the first quarter of 2013 may see price in the demand zone of 122 to 121’225. The Federal Reserve tapered this month, but look for another taper in March when the original consensus of a taper was made.

1D Chart of ZN (4Y)

1D Chart of ZN (4Y)