US10 Treasury Nearly Yearly Target, Get Ahead of Fed

by on December 4, 2013 5:39 pm GMT

The US10 treasury note yield higher on the day as 215K jobs were added in November, according to ADP’s employment report. Currently trading at 2.784 percent, the end-of-year 2013 target is only a few bps away as issued in “Treasuries Rise on ISM Data,” issued on November 2.

“Price action has broken through support at 128’085, the 20 EMA and the narrow ascending trend line. The 50 EMA will be the next level of support, while topside potential will be a retest of previous support. Given the Fed-centric market conditions and rumors of a December taper – just in time for Bernanke’s departure – a 2.85 percent 10Y is likely by the end of 2013,” I said then. Yields reach the highest point since September 18. They may continue to rise until December 17 when the FOMC meets.

The additional positive data is allowing the markets to speculate whether the Federal Reserve will taper or not in the coming months. The Fed  wanted better employment numbers, and they are getting them. David Durbin, interest rate strategist at Newedge USA, said “This number squarely puts December on the table as far as a possible time for the Fed to taper bond purchases. Fixed-income markets are going to have a real problem controlling the on-hold-for-longer message.” Still, the unemployment is still above the 6.5 percent target set this summer.

The yield gap between the 2Y and 10Y note is just 1 bps lower than the highs of 256 bps set July 2011. The 10Y note yield seen a little pullback after the lower than expected ISM non-manufacturing index data, 53.9 v. 55.4.

The speculation is reaching the for a potential December taper as analysts say it’s off one day, on the next. “The 10-year is signaling it’s preparing for something. I’m not going to be the one to stick my neck out and say this is only an ADP number,” said Michael Franzese, senior VP of fixed-income trading at ED&F Man Capital Markets.

The data is better, but Current Chairmen of the Fed, Ben Bernanke, has already reached his taper threshold. And it has not been reached. The markets must consider that the Fed Chairwomen appointee Janet Yellen is pro-QE and will continue it until the economy is to her liking, bubble or no bubble.