Will Bond Bounce Burst?

March 22, 2017 1:01PM CDT

Treasuries have had a healthy rally, and interest rates have dipped following the FOMC meeting last week.  Although the Fed increased interest rates 25 basis points in a widely anticipated move, the market had braced for a more hawkish tone regarding future moves.  However, Fed projections didn’t budge much from the last meeting, and the closely watched “dot plot” that shows each member’s expectations for where rates will be in coming years didn’t move either.  What was a crowded short position in treasuries in the anticipation of a more hawkish Fed, has become markedly less crowded as traders didn’t get anything to propel the treasuries to another leg lower. So, short covering shot the treasury market higher, and follow through has sustained the rally for the past week. 

Yellen speaks on Thursday 3/23 at 8:45am.  Some participants are expecting her to clarify the Feds stance and possibly take a more hawkish tone.  However, with the stock market experiencing some turbulence in the last couple sessions due to concerns on Capitol Hill regarding Trump’s Health Care reform and accompanying tax breaks, she may stay ambiguous as to not further roil the markets.

Technically, bonds have rebounded further than anticipated, and are closing in on very solid resistance at the 152 level in the June 30yr bond.  That would be a natural place to get short exposure as the trend remains down in bonds.  Bonds are expected to pull back from resistance barring any large scale stock market correction.

 

June 30yr Treasury Daily Chart

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