The boost fixed income markets received this spring due to the Federal Reserve’s plan to purchase Treasuries did not last as 10-year T-notes dropped back to levels from last year. T-notes, however, have posted a strong rally in June that may not be over.
Commercial real estate is behind the latest move off the lows in 10-year notes, says Jack Broz, president of the Marlin Letter. “Based on the Sep futures, 116-02.5 is the key price in this market. We’re in a rally right now and the next upside trigger to higher prices is 120-08. If we get through 120-08, we can look for moves as high as 125.00,” he says.
Rich Roscelli, broker for Whitehall Investment Management, says that the 10-year note will range trade coming into August and September, topping out at 119-25. “That’s assuming we’re going to get some strong volatility and pullbacks in the equities. There’s a securities supply issue and although we had a strong auction [July 8], I don’t see the upside that we saw last year. We’re going to test the lows and pull back at the 113-15 level by September or October,” he says.
Broz says that if support at the June lows is taken out at 113-00, that will provide another trigger to push the 10-year note yield up and futures down to around 111-16.