From the June 01, 2012 issue of Futures Magazine • Subscribe!

U.S. 10-year Treasuries grinding higher

With ongoing uncertainty and problems coming out of the Eurozone, investors have justifiably been spooked. As such, many have turned to the safety found in U.S. Treasury notes, which have steadily increased since the beginning of April.

Keith Springer, president of Springer Financial Advisors, says inflation or deflation expectations are what really push the Treasury complex. With slow economic growth, deflation and a lack of any serious improvement in the world economy, it is not surprising Treasuries have gained. “True inflation or deflation comes from wage increases and asset inflation. If you look at those two categories, there is no inflation and there is rampant deflation in both,” he says. “We have no economic growth and a huge number of people still are employed.”

Springer expects Treasuries to continue along this path until we begin seeing improving economic conditions or the Federal Reserve announces a third round of quantitative easing (QE3). “QE3 could change everything. Government interference has been distorting the ability to forecast and really the free market system since the government stared using bailouts,” he says. Springer expects 10-year yields to be 1.68%-1.72% in the near-term with support at 1.78%.

Travis Rodock, market strategist at efutures, says a big reason for the recent moves is the uncertainty coming from Europe. “It’s the risk-off attitude we’ve seen over the last couple weeks. A lot of investors have moved away from commodities and moved into the safe havens like the dollar and the notes,” he says.

Going forward, Rodock says the Treasuries will key-off of anything coming out of Europe and says any negativity there will be positive for 10-year notes. In the short-term, he puts resistance at 134-00 and 135-00 beyond that with support at 132-05.

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