U.S. Treasury bond prices took a hit around New Year’s, but two-year Treasury note prices continue to trend higher. “The two-year addresses the security issues that people have,” explains Richard Roscelli, analyst for Alaron Las Vegas. “It is going to take two to three years for the housing market to work through the inventory,” and people like the transparency and liquidity of the notes, he says. Roscelli pegs support for the March two-year at 108-06.
“Fundamentally, yields are way too low and we are due for a correction, but it’s probably a little further down the road,” says Carley Garner, analyst for DeCarley Trading LLC. She says the long end of the curve is responding to rising supply of government and corporate debt, but that’s not affecting the supply for shorter term debt. Plus a stronger U.S. dollar continues to attract foreign investment. Her downside target is 108 with resistance at 110-06.
“This is a reflection of how little inflation is being priced into the bond market,” says Rob Kurzatkowski, futures analyst for optionsXpress Inc. “It’s amazing how this yield curve has flattened. We are at a point where the contango curve in crude oil looks like a traditional bond curve and the bond curve looks like a traditional energy contango curve,” and energy prices are more likely to break, he says. Kurzatkowski sets resistance at 110-16 and support at 108-16.
