U.S Treasury bonds may see further downside pressure

A further spike up in U.S. T-Note 10-year yield can trigger a potential sell-off in Treasury bonds.

 Medium-term technical outlook on U.S. Treasury Bonds ETF (TLT)

click to enlarge charts

Key Levels (1 to 3 weeks)

Pivot (key resistance): 148.90

Supports: 136.54, 128.45 & 122.30

Next resistance: 158.80

Directional Bias (1 to 3 weeks)

Bearish bias for TLT below 148.90 pivotal resistance and a break below 136.54 is likely to trigger a potential multi-week corrective down move to target the next supports at 128.45 and 122.60 (the lower boundary of a major ascending channel from Feb 2011 low).

On the other hand, a clearance with a daily close above 148.90 see an extension of the up move towards 158.90 next (Fibonacci expansion cluster).

Key elements

  • The U.S. Treasury 10-year yield has started to show signs of resilient after its 11-month of downtrend from Oct 2018 high of 3.24% has managed to stall at a major support at the 1.40% level that has prevented further decline since Jul 2012.
  • The recent rebound from Sep 2019 low of 1.43% has broken above a descending trendline from Oct 2018 swing high with the weekly RSI oscillator that has exited from its oversold region. These observations suggest a potential mean reversion rebound towards 2.60%-2.80% zone within a long-term secular descending channel in place since Oct 1987.
  • The movement of the Treasury yield has an inverse relationship with the prices of Treasury bonds; if yield goes up it will cause the bond prices to fall and vice versa.
  • The 136.54 downside trigger for the U.S. Treasury Bond ETF (TLT) is defined by the ascending support from 02 Nov 2018 low and the Sep 2019 swing low. Interestingly, the weekly RSI oscillator has shaped a bearish breakdown from its corresponding ascending support after it hit an extreme overbought level of 83. These observations suggest a bearish presignal on the price action of TLT which increases the odds of a breakdown below 136.54.

Charts are from eSignal 

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account