The treasury market is still caught between conflicting trends. On one hand, the US is the "least dirty shirt in the hamper," meaning it is still considered a safe haven play in relation to the goings on in Europe. But there are big problems at home, especially as the debt ceiling drama plays out. The latest inflation data is pretty benign, indicating that won't be a reason for a sell-off. However, I'm still concerned that Wall Street has their collective fingers on the sell button.Let's start by taking a look at the longer picture.
The IEFs have been rallying since late April. The originally started to rally over concern about the pace of expansion in the US. In addition, fears about the EU situation added to upward pressure during the rally. Prices are clearly about the 200 day EMA, and the shorter EMAs are bullishly aligned. Prices have hit resistance at previously established levels.
The longer part of the yield curve has rallied as well, but it is closer to the 200 day EMA. In addition, the shorter EMAs -- are less strong in their orientation. Prices are far from previous highs, and in fact have hit resistance at highs established within the last few months.
These two charts tell us the yield curve is still very steep, which tells us a few things.
1.) There is little concern about the Fed raising rates anytime soon.
2.) There is little concern about inflation.
3.) The US Treasury market is still a safe haven in a time of uncertainty.
Also note the middle of the curve is near highs established last year. While they could go lower -- that effective yield on the 10 year could conceivably drop to 0% -- this is realistically out of the cards. For the last few months, yields have moved around the 3% level, which seems to be an appropriate return based on all available factors.
Let's take a look at the shorter chart:
After approaching previously established highs, prices have fallen back, and are now entangled with the 10 and 20 day EMAs. The 10 and 20 day EMAs have reached previously established levels, with the 10 day now moving lower. As I mentioned above, the 3% interest area seems to be the "center of gravity" right now.
Neither market has any firm direction right now and is instead at the mercy of macro economic and political events. There is no trade that I can see right now.
