June 30-yr Bond Futures Smack Dab at the Bottom of a Channel

April 5, 2018 12:03PM CDT

June 30yr bond futures are smack dab at the bottom of a channel that has been forming since the Feb 22nd low of 141’14.  Currently bonds are trading at 145’00.  Although bonds have been channeling up since that Feb low, this could be a quintessential flagging pattern, before a resumption of the downtrend.  If the bottom of the channel is decisively broken, bonds will be testing that low in short order.  This provides an interesting dilemma for tomorrow’s Nonfarm Payroll number, because technically there should be support at the bottom of a channel, which provides a nice technical entry point for longs.  However, if the report comes out hot, bonds will most likely dump and take out the bottom of the channel. 

Consensus estimates via Bloomberg call for an increase of 175K new jobs.  The Unemployment rate is expected to drop to 4% from 4.1%.  Closely watched Avg Hourly earnings are expected to move up a tick to 2.7% year over year. 

The Fed reduced it’s expected rate hikes from 4 to 3 in the last FOMC meeting.  However, if the report soundly beats expectations, a more aggressive Fed may make an appearance.  Fed Chair Powell is expected to speak later in the day which warrants a very close listen. 

Although the technical set up looks bullish today, I still believe the fundamentals are bearish longer term.  Tightening Fed, and bigger budget deficits is bearish bonds.  The caveat is the stock market, which has spurred some flight to quality buying.  I don’t think this flight to quality will last.  As the stock market regained footing over the last two sessions, we have witnessed the air coming out of bonds rapidly.  I think it makes sense to be neutral at this point due to conflicting technical and fundamental analysis, with a finger on the trigger ready to fade any rally, or jump on a sell off, following tomorrows report. 

30-yr T-Bond Jun '18 Daily Chart

bond_jun18_daily_chart

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