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

Treasuries stuck in Groundhog Day

“We’re at all-time low yields, so nobody has any idea up here. Nobody can look at you and say, ‘Now here’s resistance.’ So you’ve got to go with the cash yield. I would say around 1.5%, then 1.25%. If we start hitting into those prices, that’s about a top in the market,” Broz says. 

If the market rolls over, the September 10-year should find support at 132-05, Broz says. “When I talk about support, I don’t talk about where I want to buy,” he says. “I’m talking about if we can take this out, we should start to break. Then you break a whole point down to 131-08; if you take out 131-08, you can say that the bears are firmly in control.”

For 30-year September bonds, Broz told his clients to look for a price of 150-23 but that was hit within 24 hours at 150-26 before falling off to 150-05. “We could be back above that in no time,” he says. “From a technical standpoint, 150-23 is an important price. Above 150-23 — now again this is pretty close — there is 151-08, which is kind of the next level.” 

No top has held in the long bond and, technically, it has broken to the upside of a 30-year bullish channel (see “Long bull move in long bond,” below). So, with the Fed holding the cards on rates, it is hard for bears to pull the trigger, even at these levels. “What I tell my clients is there’s got to be a top somewhere. These are two places worth taking a look. Conversely, if the market takes it out, you’ve got to look to keep pushing. [My] ultimate target at 156 sounds absurd.” That level, he notes, would raise the question of a negative yield in the five-year note. “It’s possible,” he says. “But that to me is where this market is trying to go.”

In terms of yields, Broz says that bonds were then trading at 2.64% but could soon rally to a 2.5%, followed by a 2.25% yield; that would be the top. “We’re going to keep fishing; eventually people [will] say, ‘We can’t push it like this,’ Broz says.

If the 30-year market starts to break down, Broz sees an area of support at 147-28 to 146-06. “Now that’s a huge area, but that’s [one] that people could look at as some support. Then if you take that out it looks a move down to 143,” he says, adding that longtime traders believe a breakdown is likely, leading to a once-in-a-lifetime move.

“It’s going to be a career move,” Broz says. “People think when this thing breaks it’s going to break fast and hard. But there’s support the market has built in.”

Over the past nine months, the U.S. economy has shown signs of improvement, but Treasury rates have remained range bound with the yield on the 10-year note trading between 1.70% and 2.40%, until the recent surge caused by disappointing economic numbers, notes Sean Lusk, stock index analyst with PFGBest.

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