updated: Apr 27, 2018

In our last update, [see: Update on Bonds – Jan 28, 2018] we noted that 10Y price (121’265) was closing in on the bottom of a shallow, falling channel as yields were approaching what many saw as a line in the sand. We didn’t.

The closest [line in the sand] would correspond with the bottom of the shallow falling white channel – currently around 121’015 on ZN. In a perfect world, this might correspond with the rising red channel midline for TNX — about where the .382 Fib is at 28.56.But, ZN’s white channel is likely to break down, meaning support is way down at the rising yellow channel bottom. If it waits until October, it would intersect with the .500 Fib at 119’180.

If it happens sooner, ideally late April, it would drop through the .500 Fib and intersect with a falling wedge at around 118’300 – thus enabling TNX to reach 30.

As it turned out, TNX overshot 28.56 and slightly exceeded 30, reaching 30.35 on Wednesday as ZN reached 118’310.

Amid the cries of alarm, I remain convinced that rates will moderate from here and that prices have most likely bottomed. I never thought I would say it, but the 10Y is probably a smart buy at 3% — at least in the near-term.As is so often the case, there are some important caveats.

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