The last time we looked at September 10-year notes, Aug. 20 ‘Candle Quick’, we questioned the predictive value in the ‘bearish harami’ of Aug. 15 to 18 and what may have appeared to have been a confirming ‘bearish shooting star’. Prices did fall over the coming sessions with a reverse of nearly 1.5 handles before the low of 125-19 was reached last Friday. Since, price action has recovered on relatively light volume and in less than dramatic fashion.
Economic conditions as well as positioning levels support expectations for still higher Treasury prices over the coming weeks. Technical conditions did not deteriorate following the aforementioned patterns and have instead improved. Additionally, a look to the open interest changes yesterday, during the most active quarterly roll session, found open interest rise rather dramatically in longer end bond and ultra-bonds (100K and 81K respectively), giving indication that traders favored bullish legged adjustments.
Without going into great detail here, longer time frame research suggests a strong tendency for 10-year Treasuries to find an important yield low at some point over the coming month(s). I suspect that level has not yet been reached. Finally, German bund yields at sub 90 basis points provides strong attraction to U.S. higher yielding Treasuries.