The US 10-year treasury note seen demand early Monday morning, pushing yields to 10-month lows. Market participants are adding protection as the Russian-Ukraine tensions rise with pro-Russian separatists rule Eastern Ukraine. “There’s concern that things are heating up there again,” said Larry Milsten, managing director of government debt trading at RW Pressprich & CO. Although, things never really slowed down, it remained selective observance by market participants.
The yield curve (5-year to 30-year treasuries) is now the most narrow it has been since 2009. According to Bank of America Merrill Lynch data, bonds have seen their best performance through May 1 since 1988, gaining 11.6 percent. Hedge funds and large speculators have reduced their net-short positions last week, as indicated by the commitment of traders data provided by the Commodity Futures Trading Commission.
Market participants were not impressed Friday, and the 10-year treasury shrugged off a 288K non-farm payrolls gain. Price action initially sank on the more upbeat data, but many see the jump in jobs as a snap back from the weaker winter months rather than strengthening in the economy. The dollar gained over .4 percent on the news but quickly sold off, reversing all gains and ended the day slightly negative.
The RSI on the daily chart looks promising, gradually inclining through 60. It has been able to surpass slight resistance in the RSI, which should indicate more upside. The geopolitical tensions and tepid US economy should continue to support the 10-year note. Price action is approaching some resistance at 124’305 and testing the downtrend created in late May/early-June of 2013. A break of the large trend will allow price to test the 200 EMA nearing 125’155.
Support can be found at 124’170 and 123’305. A break through 123’290 would compromise the small uptrend created last week.