“I’m afraid we are going to continue in a rut unless something cataclysmic happens,” says 10-year note trader Harold Lavender. He adds that the divergence of opinion, even among members of the Federal Open Market Committee regarding the direction of interest rates, will keep the 10-year gyrating in a range of 104-00 to 107-00. And until something changes, such as Treasury Secretary Henry M. Paulson Jr. convincing China to revalue the yuan, “the market just yawns,” he says.
“We are at a crossroads in a lot of the markets here,” says Donna Heidkamp, senior broker at RJO. With bullishness in the S&Ps, energy prices coming down and inflation fears diminishing, the economy appears to be maintaining strength. Plus, there is a common belief that the Fed will not raise interest rates at its next meeting. “I won’t be interested in selling the 10-year unless we really break support in the long-term upward channel, and we are close to toying with it.” If support at 107-03 is broken, Heidkamp expects notes to drop to 105-25, if not, it will be range bound.