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Bullish US Long Yields

by Ashraf Laidi
Nov 3, 2009 16:43 | 8 Comments

Bullish US Long Yields - Us 10 Yr Nov 3 (Chart 1)

Yields on the US Treasury note show a major bullish formation, based on technicals and fundamental drivers, suggesting 4.0% could emerge before year-end. The 10-year treasury contract is the world's most liquid financial instrument; reflecting traders pricing of future inflation as well as the US govt's borrowing ability. In our July 6th piece, we predicted a bottom in 10 year yields to occur at 3.15-20% in Q4 from they stood at 3.50% at the time http://bit.ly/1msKVv . Yields eventually bottomed at 3.10% in early October before rebounding towards 3.60%. Rather than basing our fundamental argument for further yield rise solely on inflation fears, the deterioration of US govt borrowing should continue to boost long yields. The eventual signalling of an exit strategy by the Fed should further drive the reverse Head-&-Shoulder formation back into interim resistance of 3.75% (neckline), followed by 4.20%.

 

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Comments (Showing latest 8 of 8) View All Comments
zwan
qamishli, Syria
Posts: 25
15 years ago
Nov 7, 2009 16:45
u r the best mr. Ashraf
Ashraf Laidi
London, UK
Posts: 0
15 years ago
Nov 5, 2009 20:53
Racza, obviously strong job report tomorrow will be good for risk appetite and if stocks rally well, then eurusd to regain 1.4960.

Ashraf
Raczka
Budapest, Hungary
Posts: 2
15 years ago
Nov 5, 2009 0:56
Hi Ashraf,

We saw some crazy movements yesterday (wednesday) during the day and after the FOMC. Do techs still suggest Eur/usd to head south and break below 1.46 this week? Or at least some correction?

Kind regards,

Raczka
Ashraf Laidi
London, UK
Posts: 0
16 years ago
Nov 4, 2009 0:04
regi, one more thing, yes, we can see higher stocks and higher bond yields (on classic explanation that rising stocks take away gains from bonds as well as on expectation of improved economy i.e. higher inflation).

Ashraf
Ashraf Laidi
London, UK
Posts: 0
16 years ago
Nov 4, 2009 0:01
regi, careful as there is NOT CLEAR CUT correlation between USD and yields and no clear cut correlation between stocks and yields. these relationships vary from cycle to another, depending on what is the general driver in the market.

One thing for sure is the long term bullishness for bond yields (bearishness for bond prices).

Ashraf
regicider
California, United States
Posts: 1
16 years ago
Nov 3, 2009 20:08
Ashraf,

I understand that inflation fears and overall deterioration of US govt borrowing will curb demand for Treasurys, driving down price and pushing yields up. This also falls in line with your general views on USD strength against risk currencies. One thing I had a question about is that yields tend to trade in the direction of the equities market. Can we expect to see a situation of falling equities in addition to rising 10 yr yields? Thank you.
Ashraf Laidi
London, UK
Posts: 0
16 years ago
Nov 3, 2009 17:30
pepe, no i do not see Fed hikes until Q3 2010 the earliest.

Ashraf
pepe
london, UK
Posts: 15
16 years ago
Nov 3, 2009 17:25
Ashraf very interesting as usual.....putting this together with USD/JPY graph and seasonal cyclicality....doesnt it call for a 1Q 2010 perfect timing for the FED to start hiking rates?
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