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Summary
- On 14 February, the US Treasury (UST) 2-year, 10-year, and the 30-year yields were at ~4.30%, ~4.5% and 4.70%, respectively.
- Back then, we thought UST yields would trade within the YTD ranges established at that time.
- UST yields then plummeted to new YTD lows and have now bounced.
Market Implications
- We think that there UST yields could move higher, but we would like to fade that move and scale into a long position.
- Be patient and build the position when technicals become (or are near) oversold. That process has begun, and the coming weeks should present the opportunity to go long, with yields then to trade lower.
UST Market Surprised Us (a Bit) Over Past Five Weeks
Five weeks ago, we expected yields across the curve to be contained by the YTD ranges that had been established back then.
In the two to three weeks or so that followed, yields plunged to new YTD lows, before bouncing.
Bouncing UST Yields Will Be a Fade in Coming Weeks
2-year, 10-year and 30-year yields are off the lows but still nowhere near the January highs.
We think these yields can continue climbing, but that the rise will lose momentum in the coming week or two.
Therefore, the correction higher will soon end and it will be worth going long.
2-Year UST
As Q1 2025 ends, the 2-year UST yield has traded within a ~50bp range, with the peak closing level (4.38%) printing on 13 January, and the lowest closing level (3.88%) occurring on 10 March (Chart 1).
We think the 2-year can trade comfortably back above 4%, where it will be worth fading the rise.
10-Year UST
Meanwhile, the 10-year UST yield has traded within a ~65bp range, with the peak closing 4.79% on 14 January, and the lowest closing 4.16% on 3 March (Chart 2).
We think the 10-year can trade back nearer 4.50%, which is worth fading.
30-Year UST
Simultaneously, the 30-year UST yield has traded within a ~55bp range, with the peak closing 4.97% on 14 January, and the lowest closing 4.45% on 3 March (Chart 3).
We think the 30-year can trade back nearer 4.80%, which is also worth fading.
UST Technicals Neutral Across Curve
Technicals are warning us to wait before scaling into a long UST position.
This week’s RSI readings for UST futures contracts across the curve were neutral (Table 1).
The RSIs are clustered very near the middle of the oversold (30) and overbought (70) range. This supports UST prices falling further, which will also move the RSIs nearer the oversold threshold.
Therefore it is worth waiting to allow the RSIs to fall.
CTA Positioning
This week also saw CTA positioning flip uniformly bearish from modestly bullish (Chart 4).
This notable shift probably presages a near-term shift higher in yields.
We are sometimes wary when CTA positioning becomes stretched and stale. However, we are currently less worried given the move has happened over the past week.
The positioning is not stretched yet as it is only in the shorter end of the curve where CTAs are very short. The deferred maturities only show modest short positioning, despite the flip.
As the flip just happened, we think it will probably take a couple of weeks before positioning becomes stale and crowded.
This will be especially true if short positioning across the curve extends further.
UST Yields Will Have Further Brief Rise, and Then Fall
UST yields lurched lower in late February and have bounced from the YTD lows in recent weeks.
Technicals indicate prices can trade lower, especially given momentum players have flipped short in the past week.
Nonetheless, we think this drop in prices (and rise in yields) will be brief, and that it will be worth fading UST bearishness in the coming weeks.
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