As I mentioned above, I would be long in this market, at the levels stated above. However, I would have very tight stops. Remember, on the flip side of bond prices are bond yields. At some point, yields get to low to justify the risk taken. Currently, the 10-year is yielding 3.17%. Eyeballing the situation, I would use 2.75% as the abject lowest the 10-year should yield in the current environment. In addition, I wouldn't be looking for massive gains from this trade, instead, thinking that a few points would probably be the pretty good.Last week, the bond market was caught between several interesting cross currents. Despite the coming issue of the debt ceiling -- which should be bond negative -- bonds actually held steady. The reason is they are still considered a safety bid, which they caught as the risk trade (commodities) went off. In addition, concern about the EU situation contributed to the bid as well, as has weakness in the stock market.
Let's take a look at the charts:
The IEFs consolidated last week, eventually hitting the 10 day EMA and are now moving higher. The shorter EMAs are bullishly aligned (shorter above longer and all moving higher) and prices are using the EMAs as technical support. The A/D and CMF lines indicate money is moving into the market and the MACD is still giving a buy signal.
The TLT are in the same technical position as the IEFs, but with the exception of a slightly weaker price and MACD position.
My analysis of the Treasury market has not changed. The market is moving higher, but keep the stops tight. Also remember that yields are dropping, and we're getting near levels when yields shouldn't be moving much lower without a change in the fundamentals. I'd still use 2.75 on the 10 year as the absolute lowest yields can go in the current environment.