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Ten Year Channel Breakout Today?

January 10, 2011

The Ten Year closed last week on its highs.  The closes on Thursday and Friday were the strongest two in the channel the TY has formed over the last month.

Remarkably, there was a large downward day on Wednesday when the MBA mortgage applications came in weak.  I was a bit surprised by the intense selloff.  I thought part of the reason that the Fed announced QEII was to stimulate residential mortgage lending.  Of course a large part of this is so the banks can monetize their paper treasury profits – QEII is partly a backdow bank recapitalization plan.

So if the MBA numbers are coming in weak or mortgage rates are going up, it makes is more likely the Fed will announce a strong second round of buying during the QEII process.   We’re going to get between $14bn and $16bn worth of buying today and tomorrow in 6-8 year range – I am calling these 10 year futures equivalents to make it easy to bucket the purchases.

But looking at the rest of the charts, only the 30 year did not close strongly.   Germany closed last week strongly as well.  The ECB has released several statements that it will continue its purchases of debt as well.  This is a scenario where the two largest central banks are committed to keeping longer term rates low, in an environment that still has significant deflationary risks.

So the short term tenor of the market seems to be quite powerfully bullish, and we are trading at the top of the channel. Some shorts must be thinking about choking here simply due to technical reasons.

If we have a bit of upward movement, look for people to cover a bit here.  The 10 year could see a nice spike today.

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  1. Riley
    January 18, 2011 at 4:57 pm

    can you give me a good source for 10yr note and 30yr bond auctions date and exact time of auction and the news on results. this and the housing and the labor reports seem to have a big rubber band effect on the stock index’s and the tresury notes and bonds.
    do you any daily comments etc via email ?

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