Key Level on the 10-Year

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By Mike Paulenoff,

After the first day of trading of April, a relatively uneventful one for the equity markets in general, the most consequential market for me is 10-year yield, which continues to exhibit constant weakness that commenced immediately after the March 15th Fed rate hike, and currently is bearing down on a critical 5-month support level at 2.30%.

If 2.30% is violated and sustained, it will trigger potential for downside continuation that projects to 2.10% optimally, and possibly to 2.00% prior to the next upmove in the budding yield bull market off of the July 2016 historic low at 1.32%. The 10-year hit a high in mid-December, 2016 at 2.64%, and probed that level a second time into the March 15th, 2017 Fed meeting.

The next catalyst for a directional move in bonds and bond yields is Friday’s Employment Report, although on Wednesday morning we could get a preview of the jobs report from ADP. If the Treasury market heads into Friday’s report ominously leaning on, or beneath 2.30%, weak payrolls and/or wage growth figures will have the potential to send 10-year reeling lower, which will apply increasing pressure on the Trump Administration to put its aggressive growth agenda on the front burner, with a high flame underneath it.

Otherwise, it may well be that increasingly sluggish hard economic data is starting to undermine very enthusiastic soft (anecdotal, sentiment and confidence) data, which in my humble opinion will impact equities negatively (unless the Fed sends signals that it is willing and able to reverse its “tightening cycle” after moving from near-zero up to near 1% Fed Funds in the past 15 months), positively for the bond market, and positively for commodities and precious metals.

All eyes should be on 2.30% in 10-year starting on Wednesday morning, in reaction to the ADP Report, into Friday’s Jobs Report. The next important directional move in the financial markets hangs in the balance.