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Bond Prices Becoming Overbought?

Friday, April 14, 2017

Today's Spotlight Market

Both large and small speculators are favoring the short side of the Treasury Bond futures market according to the most recent Commitment of Traders report. For the reporting period ending April 4, the combined non-commercial and non-reportable position in Treasury bonds was a net-short 51,612 contracts, with large speculative accounts adding an additional 5,665 new short positions while small speculators reduced their short position by nearly 8,000 contacts during the same time period.


Treasury Bond futures were already in a price recovery mode prior to this past Friday's rather disappointing Non-Farm Payrolls report, with only 98,000 new jobs created in March. While many analysts are pointing to "weather issues" that affected much of the east coast of the U.S. last month to account for the big miss on the jobs creation, one has to wonder why they did not account for this prior to making predictions prior to the report being released. Regardless, moving on, it does appear that March's data from the Bureau of Labor Statistics (BLS) probably was an anomaly tied into how the employment data is calculated by the BLS as other evidence, such as a 0.2% drop in the unemployment rate to 4.5% in March as well as the decline in the so called U-6 unemployment rate, which takes into account those who are marginally tied to the labor force including part-time employment, which fell to nearly a 9 ½ year low. So while it appears that Treasury Bond bulls currently have the upper hand in the market, unless both the employment and economic data continues to fall short of expectations and or we see global political tensions continue to escalate, it may be difficult for the Treasury Bond rally to continue without at least a modest price correction occurring in the not too distant future. While today is a market holiday in the U.S. for both equities, bonds and futures, we still have a slew of economic reports scheduled to be released this morning, including CPI, Retail Sales and Business Inventories. With markets closed today, any major surprises in the data will have to be played out on Sunday when the U.S. futures markets reopen, which could make for some interesting trading following the Easter Holiday.

Technical Notes

Looking at the daily continuation chart for Treasury Bond futures we notice prices currently trading near the upper boundary of the now nearly 5-month consolidation pattern that has formed following the steep sell-off from all-time highs made back in July of last year. For those traders taking a longer-term view of the market, we will note that prices made a near-term bottom last month very close to a 61.8% Fibonacci retracement of the rally from the major low made back in December 2013 to the contract highs of July 2016. The market is currently holding above the 20-day moving average, but still trails the longer-term 200 day moving average which is currently hovering just above the 159-00 price level. The 14-day RSI is approaching overbought levels with a current reading of 69.44. We see the next major resistance level at the November 15 high of 155-16, with chart support seen at the March 14 low of 145-26.

Mike Zarembski, Senior Commodity Analyst