US Rates Technical Report: RSIs and Prices Fall Sharply Across the Curve, Week-Ahead Leans Slightly Bearish
- By Richard Jones and Henry Occleston
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Summary
- Prices across the curve are sharply lower now than a week ago, especially in the shorter maturities, with yields all ~20bps to ~30bps higher.
- Each of the corresponding RSIs fell sharply, with readings across-the-curve edging much closer to oversold.
- Should the RSI dynamics (outright levels and lower readings) of the last 12 months persist, stats suggest that prices in all maturities have a near 50% chance of rising or falling, ex-FV, where prices fell 61% of the time in the past year.
Using Positioning Data to Find Key Futures Levels
We look at net positioning moves in our Cross-Market Positioning Report. Here, we use an alternative model for analysing CFTC futures data based on the key levels at which fast money net positioning has changed. Our aim is to identify support and resistance levels.
The current analysis suggests (Table 1):
- WN (129.63): both RSI and price fell last week, with the current price below most of the lookback period levels. At 35.1, the RSI is getting very close to the oversold threshold of 30, yet the price has tended to fall (54% of the time) when the RSI is at this level and declining in the last year.
- US (121.56): both the US RSI and price fell this past week, with the RSI sitting on the left-hand side of the distribution at 34. This reading is the closest of all the contracts to the oversold threshold, and the price has tended to fall only 53% of when RSI is at this level and declining. US price sits below almost all the lookback period prices.
- TY (112.69): both the TY RSI and price fell this week. At 36, as with all the other contracts, the current RSI level is approaching oversold. At this level, after falling from the previous week, TY price has tended to rise 52% of the time. TY price is above each of the short lookback levels and below each of the long lookback levels.
- FV (108.70): Both the FV price and RSI are lower this week. At this level, after an RSI fall, prices have tended to fall 61% of the time the following week. The current price is above the biggest net long and net short levels across the last 12 months.
- TU (103.50): Both the TU price and RSI are lower this week, with yield jump and RSI decline the biggest of all contracts over the past week. The RSI, at 41.2, is the highest across-the-curve, but much closer to oversold than this time last week. When the RSI is at this level and declining, over the last year this suggests prices should fall further 53% of the time.
The below table is based only on the largest net changes. For a more detailed view of levels of net position changes, see the specific sectors:
WN Positioning
WN is trading at 129.63, down from 133.41 this time last week, and is approaching a modestly sized buying cluster of 129.25 (Chart 1).
WN RSI indicators are bearish. WN RSI pulled back sharply to 35.1 from 48.1. The current RSI level sits on the left-hand side of the 12-month distribution (Chart 2). The RSI has closed in the current bucket 36 times in the last year, after which the price has fallen 58% of the time. With a down move in RSI at these levels, the price tends to fall 54% of the time the following week.
US Positioning
US is trading at 121.56, down from 124.41 this time last week. At the current price, US trades between two selling clusters at 121.5 and 122 (Chart 3).
US RSI is mixed. The current RSI, at 34.0, down from 47.1, sits on the left-hand side of its 12-month distribution (Chart 4). The historic WoW performance is unclear – considering just the current RSI range, prices fell 54% of the time the following week, but only fell 47% of the time if you consider the RSI is falling.
TY Positioning
At 112.69, down from 114.41 last week, TY trades in the midst of selling clusters at 112.40, 112.70 and 112.90 (Chart 5).
TY RSI bullish. The RSI at 36.0, down from 52.7, sits on the left-hand side of its 12-month distribution. TY has tended to rise (52% of the time) when the RSI has closed in this bucket and been moving downwards.
FV Positioning
Trading at 108.70, down from 109.96, FV trades below two selling clusters at 109 and 108.90 (Chart 7).
FV RSI is bearish. The RSI, at 38.1, fell from the previous 56.7 reading. Subsequent week price moves have been bearish; falling 58% of the time over the past 12 months when closing in this range and falling 61% of the time when the RSI has been in this range and moved lower as seen this week.
TU Positioning
At 103.50, down from 104.14, the contract is above a buying cluster at 103.35 and a smaller-sized selling cluster at 103.20. (Chart 9).
TU RSI is bearish despite sitting on the left-hand side of the 12-month distribution. At 41.2, it has pulled back aggressively from the previous level at 65.1. The week-ahead prognosis is bearish — prices fell 59% of the time over the past 12 months when closing in this range. When the RSI has been in this range and moved lower (as seen this week), the proportion of week ahead price drops is at 53%.
Richard Jones writes about FX and rates markets for Macro Hive. He has traded and invested in interest rate and FX market portfolios spanning three decades, both on the buy-side and sell-side.
Henry Occleston is a strategist who focuses on European markets. Formerly, he worked in European credit and rates strategy at Mizuho Bank, and market strategy at Lloyds Bank.