With the uncertainty in the stock market and with mortgage based securities in shambles, 10-year Treasury notes have been a logical destination for those on a flight to safety, and since June, the 10-year has rallied to 111-00 from 103-16. “The driver has been the subprime collapse and the credit crunch all rolled into one, says Holly Liss, VP at CITI. “And whether the rally continues will be dependant on whether the contagion spreads nationally and internationally.” During October, as long as we stay above the 4.40% to 4.42% yield area, she says the December 10-year futures will trade between 114-01 and 114-14.
The technicals look healthy and we could trade a lot higher if the Fed eases aggressively, or if the subprime problem is worse than we think, says Robert Griffin, independent trader and broker. “The Fed is going to do something,” he says, and if they lower rates, it will be bullish for Treasuries. He expects the 10-year to trade between 110-00 and 111-31, unless issues related to subprime lenders are worse than imagined.
“We are not going to go skyrocketing higher, at least for now,” says Harold Lavender, independent broker and trader. He says we haven’t seen the highs yet and we won’t go below 110, but there’s a caveat. “If the Fed doesn’t cut rates and use language that they will cut more, then that goes out the window and the market could go lower.”