US 10-year bond yields have backed up sharply since their September low of 3.63%, closing at 4.25% on Friday (fig 1). In part that’s been driven by (i) optimism about the cyclical outlook for the US economy (macro data has surprised to the upside, while recession concerns have faded); and (ii) some ‘pre-election positioning’, with both Trump and Harris expected to expand the fiscal deficit. Linked to that, there are growing concerns about the lack of fiscal discipline in Congress (particularly under a Trump presidency, in which Republicans control both chambers).
Of note, though, with that recent sell-off in fixed income, US Treasuries have become oversold. That’s the message of our medium term technical scoring system, which has generated timely signals in recent months (see fig 1a). In a similar vein, measured sentiment is now mid-range, having been close to bullish levels. Elsewhere, net speculative positioning in Treasury futures is SHORT (fig 1b), albeit this has been somewhat distorted by the ‘basis trade’ (analysed in detail HERE last month by the CFTC).
Overall, the ‘stronger growth’ and ‘fiscal expansion’ narrative has become a popular one in markets. As such, and with BUY signals from certain/key medium term models (fig 1a), that narrative is also largely in the price (at least for now, i.e. in the near term).
Fig 1: US 10-year bond yield shown with 50 & 200 day moving averages
Fig 1a: Longview medium term technical scoring system vs. US 10y futures
Fig 1b: 10-year USTs net speculative positioning vs. 10-year USTs futures price
