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The 10-year Treasury Playbook

By:

President of Blue Line Futures

E-mini S&P (March) / NQ (March)

S&P, yesterday’s close: Settled at 3792, down 25.50

NQ, yesterday’s close: Settled at 12,897, down 200.25

Fundamentals: U.S. benchmarks are edging higher ahead of the bell and continuing their post-Nonfarm Payroll consolidation. Amid ongoing political turmoil, the inflation narrative is quietly poking its head around the corner. Today, the 10-year Treasury yield hit a high of 1.175% as it closes in on our target of 1.25%, something we have steadfastly capitalized on since calling for the monumental shift at the end of September.

On CNBC, on October 8, 2020, Bill Baruch announced our belief that yields will rise and broke down how we are positioning in the 10-year Treasury prices in order to capitalize.

On CNBC, on November 3, 2020, Bill Baruch reiterated our belief that yields are rising, announced our target of 1.25%, and discussed how we are positioning.

These are just two of many videos and interviews discussing the topic.

Last week, ISM data blew the doors off and Democrats took control of all three branches of government. The strong data is the first sign of what we have been calling for; inflation. With unprecedented amounts of stimulus sloshing around, it is only a matter of time before inflation shows up. We may not see it in all the straightforward economic data just yet, but Treasury yields are certainly telling us something right here. Tomorrow, we look to U.S. CPI, expectations are still very tame at +1.6% YoY and +0.1% MoM. Added tailwinds have certainly come from the Georgia elections and Democrats newfound control. This paints a foreseeably clearer path to more fiscal stimulus which means more Treasury supply to pay for it.

Federal Reserve members have begun pointing to the second half of the year, where they expect fiscal measures, the vaccine, and reopening to converge and ignite a strong economy. Yesterday, both Atlanta Fed President Bostic and Richmond Fed President Barkin said such should allow them to reduce bond purchases. The same purchases that keep that added supply from pushing yields further.

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Yes, our target is 1.25% for several technical reasons, but fundamentally, because that is where, when it was trading at 0.7%, that we expected it to begin garnering ongoing headline attention which is proven to encourage a timeout.

Today, Bostic speaks again at 7:30 am and 10:00 am CT. Fed Governor Brainard, a permanent voting seat, speaks at 8:35 am CT. Outgoing 2021 voters, Dallas Fed President Kaplan speaks at 10:00 am CT and Cleveland Fed President Mester speaks at 11:00 am CT. Closing things out are 2022 voters Kansas City Fed President George at noon CT and Boston Fed President Rosengren at 1:00 pm CT.

We look forward to not only digesting their narrative but the results of the 10-year Treasury auction at noon CT. Listen, we believe there is room for this move to continue. As can be seen in Bill Baruch’s videos, our price target is about 134’24, but again traders must be cautious chasing a move three months in the making; patience will bring opportunity. At the same time, markets like to bring the most pain to the greatest number of people and would be the underlying reason for a quick move from 1.25% to 1.50%; the real pain is at 1.50%.

Technicals: The path of least resistance in equity markets is still undoubtedly higher, however, there are two things we cannot ignore this morning. First, although the NQ responded terrifically to our major three-star support at 12,861-12,897 the first four times, a fifth today may be less enthusiastic as sellers are attempting to chew through the market profile. Secondly, rallies in the S&P have stalled against what was our next upside target at 3817.75-3827.50. Still, there is some amazing construction going on and it is easy to forget that just last week U.S. benchmarks surged to new records. That rip higher allows for the development of a bull-flag-like pattern. Really what matters here is trapping the bears at lower levels from the development of marginal lower lows over the course of a few days. In the case of a flush to our first major three-star support in the S&P at … Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

Crude Oil (February)

Yesterday’s close: Settled at 52.25, up 0.01

Fundamentals: Following up on our discussion in the S&P/NQ section, the rise in Treasury yields is a sign of inflation showing up now and what is about to come. One of the greatest pulses of inflation is certainly Crude Oil. The rise in Crude Oil is not only a byproduct of unprecedented stimulus measures and Zero Interest Rate Policy, but it is the embodiment of the inflating prices themselves. We have been bullish Crude Oil for quite a while and steadfastly called the $35 region a tremendous buy zone during the same period we began calling for the 10-year Treasury to rise to 1.25%. Crude Oil has gained 50% from that buy zone, we hope you were able to capitalize. Most recently, we have pointed to our upside target being achieved and how we have found value in cheap, defined-risk downside exposure of the near to intermediate-term. We maintain this narrative into today as inventory data comes back into the picture. Call our trade desk at 312-278-0500 to discuss further.

Technicals: Price action has stuck its nose out above our next upside target of 52.95, our only resistance that stood above $50, and checked against major three-star resistance that aligns multiple technical indicators at 53.38-53.60. A close above the 52.95 mark is needed to keep feeding the bullish narrative in the near-term. However, lurking just below is our momentum indicator at … Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

Gold (February) / Silver (March)

Gold, yesterday’s close: Settled at 1850.8. up 15.4

Silver, yesterday’s close: Settled at 25.284, up 0.647

Fundamentals: Gold and Silver enjoyed a recovery through yesterday’s session after Friday’s bloodbath. Those recovery tailwinds continued into this morning before being smacked with a strong wave of selling. Continuing with today’s Treasury and inflation narrative here, although this is not something new to this precious metals section, readers since last week should be well versed in what has been the worst case scenario for Gold; rising Treasury yields with a strengthening Dollar. Such has rained on what was initially a terrific start to the year for both Gold and Silver. We still believe that both finish out a fruitful seasonally bullish time of year, but the headwinds are real. Gold and Silver, must capitalize if our 1.25% target in the 10-year proves to encourage a consolidation and if the U.S. Dollar’s bounce has stalled. Today, we look to a deluge of Fed speak that will certainly impact the tape ahead of tomorrow’s CPI data:

Bostic speaks again at 7:30 am and 10:00 am CT. Fed Governor Brainard, a permanent voting seat, speaks at 8:35 am CT. Outgoing 2021 voters, Dallas Fed President Kaplan speaks at 10:00 am CT and Cleveland Fed President Mester speaks at 11:00 am CT. Closing things out are 2022 voters Kansas City Fed President George at noon CT and Boston Fed President Rosengren at 1:00 pm CT. Technicals: We have welcomed this weakness in Gold and Silver, although it has exceeded our expectations for this pullback. We must continue to see construction above major three-star support at 1813-1820 in Gold and 24.30 in Silver; a higher low than yesterday. Furthermore, continued action above our Pivots, for Gold this is 1841.8 and for Silver this is 25.03-25.12, will set the stage for repair. So far, rallies in each have stalled at our major three-star resistances, for Gold at … Sign up for a Free Trial at Blue Line Futures to have our entire fundamental and technical outlook, actionable bias, and proprietary levels for the markets you trade emailed each morning.

Originally Posted on January 12, 2021 – The 10-year Treasury Playbook

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