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Morning Futures Roundup

Make or Break Time for Bonds
 Fundamentals

Bond futures continue to drop, causing the yield curve to be at its steepest level since 1980. Improvements to the employment outlook have stoked fears of inflation in the future, which may result in the Fed aggressively raising rates in the future. Also, the size of longer-dated auctions has resulted in lackluster buying interest and an upswing in long bond yields. Supply will likely be a key consideration among traders and will likely inhibit price appreciation unless economic conditions in the US deteriorate quickly. The recent stability the US Dollar has seen may limit the slide in Bond prices. Also, the possible downgrade of British debt could cause international traders to find solace in the relative safety of US debt. The fundamental outlook for Bonds shows grey clouds with silver linings. Today’s FOMC policy statement is expected to be very vanilla, so as not to disrupt the markets. Nonetheless, early trading may be somewhat subdued, but volatility could be on the upswing in the afternoon.




Technical Notes

Turning to the chart, the March Bond contract has seen very narrow ranges in the past few sessions. Prices have been hovering around the 117-16 level, which can be seen as solid support. If this support level is broken, Bond prices could trade into the lower teens. Failure to violate this support area could result in sideways trading for the foreseeable future between 117 and 120.

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The RSI remains in the lower end of neutral readings, and a dip to oversold levels can be seen as supportive in the near-term. Momentum is showing some bearish divergence from the RSI, hinting at near-term weakness.

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