US Treasuries Fall with European Bonds

by on November 8, 2013 7:20 pm GMT

The markets were shocked with the continued stream of positive data today, with the exception of the University of Michigan consumer confidence number. US treasuries fell alongside the European bond market as demand for fixed-income assets decline.

The US 10Y treasury climbed 14 bps to hit 2.74 percent, roughly 11 bps below the target of 2.85 percent. The highly-regarded German 10Y bund also is following a weekly decline as the data shows improvement in the US markets. Troubled peripheral eurozone bonds of Italy and Spain fell, as well as France’s fixed-income.

“Expectations for U.S. tapering are being brought forward. That’s weighing on Treasuries and the U.S.-German spread is widening, ” said Mathias Van Der Jeught – a fixed-income strategist from KBC Bank NV. Today’s non-farm payrolls are playing a large part of the decline across the board. The spread between US and German debt increased to 98 bps.

The US 10Y note futures is playing out nicely through the technicals, too. Price action has been bouncing back-and-forth off of 4H support and resistance levels, and now the 10Y failed to get back above the ascending trend line. The subsequent fall through the 20, 50 and 200 EMA shows the momentum behind the fall.

The 4H RSI is oversold, but this can remain the case as long as traders feel that there is more opportunities outside the bond market. The RSI on the daily is 43 and 44 on the weekly charts for comparison purposes. This allows further selling over the long-term given a sentiment change, and should not necessarily pay too much into shorter-term charts on overextended positions.

125’200 is the next price action support with the 90 day low just below it.

4H Chart of ZN (US 10Y futures)

4H Chart of ZN (US 10Y futures)