Still Bullish, Overall
Today's relatively strong retail sales report has the 10-year Treasury bond challenging support at 1.68%. As I write this we are trading at 1.71%. Setting aside the report itself (it only beat expectations because the prior periods were revised down), we should explore whether today's action represents a breakout to the upside in yields (downside in price) or it's a buying opportunity because the range will hold.
First let's look at some other technicals. The 10-year is already fairly oversold. We haven't been this oversold since late May, right before rates dropped 50 bps. Relative strength isn't a great predictor of rate moves, but it does probably mean that good economic news may be less impactful than bad news. Second, and this is underrated, the Treasury/German Bund spread has widened to 25 bps. Other than a couple brief periods, 25 bps has been about the upper limit on that range over the last 18 months. Assuming that holds, it means that our rates won't rise much unless German rates rise. And for German rates to rise, we need more good news out of Europe....364 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
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