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Yesterday's late session break has bonds seeing buying

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Yesterday's late session break in key support levels we talked about earlier in the day in our intraday updates came after the Treasury markets were closed. This morning's bond market action has cash finding its way into the Treasury market and I'm monitoring things here.

My current thinking is that a 10-year YIELD break below the 4.967% level, most likely finds further buying and rotation of cash to the perceived safety of Treasuries.

The monitoring of the 10-year YIELD will become important, especially to those bears in equities that may be looking to try and correlate some of their covering activities, but will also serve as one part of the market we like to monitor to get a feel for the MARKET's perception on risk/reward versus stocks and bonds.

10-year YIELD chart - Daily Interval

The 10-year YIELD ($TNX.X) did trade below the 4.967% YIELD level this morning and that is a near-term sign of strength for the price of the bond, as the buying creates a lower YIELD. Yesterday's break lower in key technicals for the Dow Industrials (INDU) and S&P 500 (SPX.X) undoubtedly have some cash taken from there and moving to Treasuries today.

Some bond traders are also noting that they are seeing some cash come back to Treasuries after the Bank of Japan once again intervened in the currency markets, selling Yen and buying U.S.$.

I think equity traders (bull or bear) need to keep an eye on Treasuries at current levels. As it relates to the 10-year YIELD, bears need a break in YIELD back below the 4.967% level and a continuation follow through to the downside to signal that money is continuing to roll out of equities and toward bonds.

Conversely, a bull needs YIELD to firm up and look for strong stocks that trade above trend which may have recently pulled back into a base of support, follow a rebound higher in YIELD as institutions stick with their strong stocks that currently fit their analysis, scenarios going forward based on ever-changing market conditions.

Jeff Bailey
Senior Market Technician
Option Investor

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