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Summary
- US short-end yields have been wild this month, with prices rallying and sliding with every White House policy zigzag.
- The 2-yr US Treasury (UST) yield is now very near the middle of April’s MTD range (~3.65%/~3.95%).
- Technicals on US short-end futures contracts are neutral, very near the middle of the 30 (oversold)/70 (overbought) RSI readings.
Market Implications
- We like buying price dips in the US short end, waiting for the RSIs to unwind nearer oversold, and looking to going long nearer the 200-day moving averages (DMA).
April Has Been Wild for Markets
Markets have been turbulent since President Trump’s big tariff announcement on 2 April, especially the US short end rates market, where yields have been chopping around wildly.
On a closing basis, the 2-yr UST yield has traded within a 30bp range (roughly 3.65%-3.95%), but the trend of lower yields seen in Q1 has halted (Chart 1).
Fed Will Ease More Aggressively Than Market Is Pricing
Nonetheless, we think the downward trend in short-end US yields can resume in coming months. Dominique Dwor-Frecaut argues why, saying a US recession is likely unless the Trump administration moves towards sustainable and predictable tariff policies.
Tariffs will lift the price level by at least 1ppt while the long-term impact on inflation is uncertain.
Regarding US monetary policy, Dominique thinks the Fed is likely to cut by about 150bp as the recession will reduce the long-term impact of tariffs on inflation.
This is much more aggressive than the market is currently pricing.
As such, this will cause short end yields to fall, as market pricing catches up to Dominique’s Fed expectations.
Technicals Argue for Patience in Establishing Long Positioning
Even though Dominique’s Fed expectations mean we are bullish the US short end, technicals suggest employing a buy-on-dips strategy.
On the June 2026 3-month SOFR future (SFRM6, one of Antonio del Favero’s favourite positioning tools in the US short end), the RSI is now at ~56 (Chart 2).
This means the RSI is near the middle of the 30 (oversold) and 70 (overbought) levels.
Therefore, we see the current RSI reading as neutral.
As such, we would like to wait for the RSI to get nearer 30 (oversold) before going long.
Watch 200-DMAs
We also think the 200-DMA for SFRM6 and the 2-yr UST yield give decent parameters for navigating the US short end.
SFRM6’s 200-DMA is currently at ~94.49. (Chart 2).
On any price pullback, traders can use the 200-DMA as the ultimate arbiter to validate the continuation of the bullish trend in SFRM6.
As such, traders can buy ahead of the 200-DMA, knowing a fundamental breach below the level means a continuing rally is less likely.
Conversely, holding above the 200-DMA is encouraging for US short-end bulls.
The 2-yr UST yield’s 200-DMA is currently at ~4.07%.
Applying the same notion to the 2-yr UST yield, traders can lean on the 200-DMA, knowing the bull case remains intact as long as the yield stays below the 200-DMA.
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