A Technical Take On T-Bond Futures

At the end of October, the Federal Reserve approved a small interest rate cut of a quarter-point.  The central banks Federal Open Market Committee (FOMC) lowered its benchmark funds rate to a range from 1.5% to 1.75%, which banks use to charge each other for overnight lending.  This didn’t have much of a surprise to the market as it anticipated the rate reduction. This has been the third rate cut by the FOMC so far this year. The image below is a chart of the 30-year Treasury Bond futures from the start of 2019.  

T-Bond futures had a mediocre start to the year and began to trend slightly lower throughout the first quarter of 2019.  At the start of the second quarter, T-Bonds began to drift higher forming an ascending wedge pattern. T-Bond futures broke from that pattern and began to move higher finding dynamic price support at its 50-day moving average.  They continued to move higher, rallying over 11%, eventually finding some price resistance right around the 167’15 price level. T-Bond futures began to pull back at the end of the third quarter and continued to trade lower into the fourth quarter.  Currently, T-Bond futures are breaking below its year-long uptrend and finding some price support right at its 150-day moving average.  

Traders who are bearish on T-Bonds should watch the MACD sell signal, along with a move below 155’26, for a possible move lower to its 200-day simple moving average around 154’00.  

Traders who are bullish on T-Bonds should watch for a possible move above the 50-day Simple Moving Average and above its November high of 161’22 for a potential move up to its September highs around167’15.  

The above image is a chart of the 30-year T-Bond futures yield over the past 35 years. The price of a bond and its yield are inversely related, meaning that if bond prices are going higher then its yields are going lower.  As you can see from the chart above that we have been in a long-term bear market for yields since the late 1970s. The gray areas are periods in time where the United States went through recession periods, with a decrease in rates occurring in each one.  Interest rates have come down from the extreme levels it saw in the 70s, 80s, and 90s, but no one is sure how long we can sustain these low-interest rate levels that we have now. 

Currently, the stock market is coming off of all-time highs it made earlier in the week.  This has caused a “risk-on” scenario where traders and investors have been flocking to the stock market and out of bonds which have caused yields to increase and bond prices to decrease.  

Traders and Investors in T-Bonds should be aware that this Tuesday, November 12th, Richard H. Clarida, the Vice Chairman of the Board of Governors of the Federal Reserve System, will be giving a speech, addressing the economy and interest rates.  

 


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