Chart of The Day US10 Year Treasury Note

US10 Year Treasury Note Probable Price Path & Potential Reversal Zone

Global risk sentiments were buoyant on Friday despite a lackluster US labour market report, as hopes of fresh fiscal stimulus pushed the S&P 500 up to a record high for the second straight day. The S&P 500 also chalked up its biggest one-week gain since early November, as the House of Representatives voted 219-209 to adopt the budget resolution that had cleared the Senate earlier, paving the way to advance President Biden’s $1.9tn stimulus package, hopefully before the unemployment benefits expire on 14 March. VIX eased to 20.87, the lowest since 30 November. The reflation trade also contributed to further bear-steepening in the UST bond market, with the 2-year yield at a record low of 0.1013% whereas the 10-year yield was up to 1.17%. There are $58bn 3-year, $41bn 10-year and $27bn 30-year bond sales this week. The USD also declined on expectations of fresh fiscal stimulus funding needs. Separately, China’s foreign reserves moderated slightly to $3.2107tn at end-January.

US: Nonfarm payrolls missed market expectations in January, coming in at only 49k, whilst the December data was also revised down from -140k to - 227k. However, this was mitigated by the unemployment rate which unexpectedly fell from 6.7% to 6.3% (with under-employment also down from 11.7% to 11.1%) as more people left the workforce. Average weekly hours rose to 35 (highest since at least 2006) amid a still healthy rise in the hourly earnings at 5.4% yoy (0.2% mom). Cuts in retail, transportation, leisure and hospitality also meant that private payrolls rose only 6k. Note Treasury Secretary Yellen commented that the US could return to full employment next year if a robust stimulus package was forthcoming, otherwise it could take much longer until 2025. Meanwhile, the December trade deficit also narrowed from a record $69.0bn to $66.6bn, but recorded its largest annual trade deficit since 2008.

From a technical perspective the US10y looks poised to retest and potentially undercut the current cycle lows the key level to watch for the coming sessions is 136.12 which represents the 78.6% retracement of the advance from the 2021 cycle lows. A failure to find support at this level will open a move to test pivotal 136.00/13530 support this will broadly coincide with 10yr yields (chart above) making a test of 1.25% which should act as resistance on the initial test setting up pullback to retest 1.15% as support broadly 136.30 in price. Important to note that Bonds trade inverse to yields rising yields lower bond prices higher bond prices lower yields

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