US 2yr treasuries sees a bearish divergence – RBS

FXStreet (Barcelona) - William O'Donnell, Head of US Treasury Strategy at RBS, shares the technical outlook and the trade setup for US treasuries.

Key Quotes

“Enter 5s10s Treasury steepeners on dips to support ~56bp. Long term target: 82bp. Stop-out: daily close below 45bp. L-T Conviction Level: 4.”

“Enter 5s30s steepener on dips to support ~120bp. Long term target: 160bp. Stop-out: daily close below 102bp. Conviction Level 4.”

“Pay 10y10y rate, receive 5y5y rate DV01 wtd. Long term target +40bp, Stop-out: daily close below 0.0bp. Conviction Level 4.”

“Long term technicals remain bullish for the belly with a return to FLAT in 2s5s10s possible over the coming months (expected 6mo range +53bp to FLAT). There is minor support at +31bp and better support begins at 40bp. Our long-term CONVICTION LEVEL: 2 (1=low, 5=high).”

“2s (0.524%)- Next major support doesn't emerge until ~0.80% where we found buyers back in the spring of 2011. Resistance seen at 0.40% where we'd close a gap left behind in late October. Daily momentum is now bearish with evidence of Bearish Divergence too.”

“5s (1.31%)- Next support sits at 1.46% and then stronger support comes in at 1.70% and just above. Next resistance begins at ~1.30% and extends down to major resistance at 1.15%. Daily momentum is mixed now.”

“10s (1.88%)-Next resistance comes in some congestion in and around 1.80% then the low yields of 1.64%. Next support comes in ~2.20% with major support at 2.40% after that. Daily momentum is mixed again.”

“30s (2.55%)- Bonds have nearby support ~2.85% and then better support up near 3.10%. Next resistance around 2.40%. Daily momentum is back to mixed.”