As we have been noting in recent commentaries, the U.S. 30-Year bond futures have been approaching a key pivot level of 151 (DEC 2012 futures). With the combination today of Draghi's announcement of an unlimited bond buying program to essentially prevent the euro’s destruction, along with U.S. economic data healthily beating estimates this morning (ISM was 53.7 vs. 52.5 forecast), U.S. 30-Year Bonds found good reasons to slide down in price today.
Our key pivot point of 151 held up as the Bonds made a small run above it for one day, but could not hold. We now look at our next major pivot level at 146, and the next major support at 142-143, which was the high of the 2008 rally. If U.S. economic data keeps surprising to the upside, and the European sovereign debt situation keeps getting worked on positively, we would not be surprised to see U.S. 30-Year bond futures keep sliding. The double-bottom area of 135 would be our longer-term price target for an initial bear move.
It’s interesting to see this happen right after Bernanke's Jackson Hole Speech on Friday when he mentioned the Fed will do everything it can to bolster the economy. Looking back, even though it was only a week ago, that could have been the turning point for both bond and equity markets. It’s an interesting element of psychology that once QE3 was put on the table as an option, the bonds actually drop. Of course, there was excellent economic data today, and Draghi did signal (like Bernanke) that the ECB will do whatever it takes to stabilize the Eurozone. However, our point is that sometimes it is wise not to go with the crowd, especially after a market has made such a large extended move like the U.S. 30-Year bond futures have recently.