Treasury Selloff Poised to End, Citi Says: Technical Analysis

Treasury 10-year notes, off to the worst start in a decade, may be poised to turn around after failing to sustain a rise in yield to levels that would have confirmed bearish sentiment, according to Citigroup Inc.

A closing yield of below 1.84 percent today will signal the selloff that sent the yield on the benchmark security as high as 1.97 percent on an intraday basis and 1.91 on a closing basis was a so-called false break of the current technical trading trend, Citigroup said. Ten-year yields have failed to sustain a move above 1.89 percent, a technical level that would have meant higher yields.

“We’ve tested these levels a number of times, and each time the market bounced back, and we are looking like we are going to reject it again, suggesting the selloff may have run its course,” Tom Fitzpatrick, chief technical analyst at Citigroup in New York, said in a telephone interview. “The start of the last few years has seen similar early optimism met with resistance, and this is very similar. It’s typically followed by lower yields.”

The 10-year yield declined three basis points, or 0.03 percentage point, to 1.82 percent at 11:32 a.m. New York time, according to Bloomberg Bond Trader prices. The yield reached 1.81 percent, the lowest since Jan. 2. The 1.625 percent note due in November 2022 gained 7/32, or $2.19 per $1,000 face amount, to 98 7/32.

Premature Optimism

A rejection of higher yields will set the stage for a move lower that could push the benchmark security to as low as 1 percent by the middle of the year, Fitzpatrick said.

“The optimism about the economic and employment pickup is premature,” Fitzpatrick said. “We are in an atmosphere where taxes are being raised and spending is being cut, which means lower growth. As a result the Fed will be more dovish than they would have been, which is good news for Treasuries.”

Ten-year notes have lost 0.96 percent this year, more than double the 0.43 percent loss in the broader Treasury market, according to Bank of America Merrill Lynch indexes. The last time the security started the year worse was 2003, when it lost 1.89 percent.

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.

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