US 10-year Treasuries have sold off sharply since their mid-September highs (by 4.3%, see fig 1). In the main, that’s been driven by rising inflationary concerns because of Trump’s plans to (i) impose tariffs (i.e. increasing goods prices); and (ii) deport ‘millions’ of undocumented workers (thereby tightening the labour market and, in theory, increasing wages & services inflation). Other factors have added to weakness in the bond market. US macro data, for example, has been better than expected (and rate cuts for 2025 have been rapidly priced out). There have also been concerns about the (coming) increase in US government indebtedness.
All of that news, though, is largely in the price (and markets, of course, are forward looking). Price action in US 10 year bonds has been interesting in that respect. That is, the closing high in yield was on 13th November at 4.44%. That was only just above the close on 6th November (4.42%), i.e. the day of the election result. Since then the bond market has traded broadly sideways.
Furthermore, our medium term models are generating a clear set of BUY signals for US Treasuries. That includes our medium-term technical scoring system, which has generated timely signals in recent months (see fig 1a), as well as measured sentiment readings (which are now bearish/back on BUY, see fig 1b). Elsewhere short positioning in 10 year Treasuries is crowded (fig 1c), while net shorts in 5-year bonds are at record-high levels (fig 1d). Short (or UW) bonds is now, therefore, a consensus trade (and a near-term rally is likely).
Fig 1: US 10-year Treasury futures price shown with 50 & 200 day moving averages
Fig 1a: Longview medium term technical scoring system vs. US 10y futures
Fig 1b: CONSENSUS Sentiment* towards bonds vs. USTs futures price
*CONSENSUS Sentiment Index created by CONSENSUS, Inc. and is based on market opinion published by brokerage house analysts and independent advisory services. consensus-inc.com Tel: 816-373-3700.
Fig 1c: 10-year USTs net speculative positioning vs. 10-year USTs futures price
Fig 1d: 5-year USTs net speculative positioning vs. 5-year USTs futures price
