I feel like an apologist for the bond market by not embracing a more bearish stance.
Short-term technicals are into oversold territory—top of a channel, 10s at 200-day MA, both around 2.32+ percent—with the coming week’s data looking rather poor. Dips are expected in ISM, and the all-important NFP report is expected to show a 78k gain and only 53k in private jobs. The hurricane impact which will screw up the data for a while and, as such, be looked at with skepticism if weak and confusion if not. Confusion, however, with a bearish skew, as it will enhance prospects for a December hike.
In short, this is an area for consolidation and, perhaps, a bit of upside. I wouldn’t get too bullish, as things are not desperately oversold. Daily Sentiment Indexes, for instance, in TY were middling near 50 and have merely edged to 35. U.S. was more overbought, near 80 percent bullish, but now are just near 50. I don’t see extremes here.
The belly looks like it has bullish momentum for an outperformance, relatively speaking, but the takeaway is that I don’t see a lot of curve drama. I do like 10s/30s steepening technically, as the chart below indicates, because momentum is overly flat.
Cutting to the simple chase of the matter, I see: (1) 10s/30s moving to 60.4 bp, the 200-day MA and the wide from early September; and (2) 10s have support at 2.41+ percent, prior highs and then very little until 2.55-65 percent. (I could nuance that, but suffice it to say, support is some distance away.) Resistance for 10s comes at 2.28 percent, a bit of a volume bulge from Wednesday, then an air-pocket until about 2.24 percent and then to recent lows near 2.21 percent.
PCE deflators just came out weaker than forecasted and well away from Fed’s goal. And, odds of a December hike are at 70 percent. I like buying Fed Fund futures when odds are over 70 percent.
David Ader is Chief Macro Strategist for Informa Financial Intelligence.