US Treasuries Look Cheap Among Counterparts, BoA

by on November 7, 2013 3:02 am GMT

According to the Bank of America (BoA) Merrill Lynch index, United States 10Y treasuries, and longer, yield more than one percent more than their non-US counterparts, the most since 2010. In the wake of a potential taper in the Federal Reserve bond buying in the coming months, US treasuries have become more cheaper that international sovereign debt.

Higher yields  in treasuries are signaling that the market is looking for a taper in the near future. Tomohisa Fujiki, an interest rate strategist at BNP Paribas-Tokyo, said “treasury yields are much higher than at the start of the year.” It is likely that yields will continue to rise throughout the rest of 2013.

Currently, the 10Y treasury note yields are 2.642 percent, compared to the German 10Y at 1.744 percent and the Japanese 10Y at a meager .609 percent. Bloomberg bond trading data indicates a 1.76 increase in the 10Y yield since the end of 2012.

Yields in the 10Y note rose in the prior session as traders speculate that the Federal Reserve will continue a near-zero interest rate environment when the taper does occur, and the Federal Reserve signaled low rates through at least 2015.

US 10Y note futures have gone through a couple support levels on the daily chart, and they have now become resistance. The price action bounced of the 50 EMA at 126’115, and it currently lies just above the 20 EMA at 126’295. The 10Y is just under resistance. If rejected, a move back down to the 50 EMA is expected, while a close above will lower rates as price moves up to 127’085.

1D Chart of ZN (US 10Y futures)

1D Chart of ZN (US 10Y futures)

Bond prices and yields are inverse. As bond prices go up, yields go down and vice versa.