Financial markets are not listening to the announcements of Federal Reserve members, who are somehow trying to blur the extremely dovish perception of Powell's words at the recent Fed conference. U.S. 10-year bond contracts (TNOTE) are gaining for another session in a row, adding nearly 0.3% today even before the U.S. market opened. Wall Street is clearly at odds with the Fed's projections, betting on more than 150 bps of rate cuts in 2024. Markets expect the first cuts as early as Q1 2024, at a time when yesterday, Raphael Bostic indicated that two cuts are realistic, in the second half of the year. This indicates again a certain split, which puts bankers under pressure. However, it is unclear whether this will be sustainable, as the market is clearly betting on cuts and falling inflation. What's more any deterioration in macro data could put even more pressure on yields and provide an additional catalyst for bonds (and TNOTE).
Moreover, recently released data seems to support the overall narrative on Wall Street, and if the momentum is maintained, we could see the first cuts sooner than in the second half of the year. Bonds have had their strongest period of growth since 2009, and the result of an institutional survey (FMS) of fund managers according to BofA indicated that 91% of investors see no chance of further Fed rate hikes. All of this is causing yields to lose and the risk-free rate to fall through the prism of an imminent, another dovish shift in monetary policy. The beneficiaries of this situation are, of course, risk assets such as cryptocurrencies and stocks, as well as bond prices, which returned to growth. Although Chicago Fed President Austan Goolsbee stressed yesterday that the Fed cannot look at the wishful thinking of financial markets, a change in US macro policy seems almost a foregone conclusion and the question is no longer 'if' but 'when'.
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Looking at the trading of US 10-year Treasury bond (TNOTE) futures, we see that the V-shaped rebound has brought a lot of optimism, with hopes of breaking the downward trend. The broken major resistance in the form of the SMA200 has become support, and in a correction scenario, it seems that it can be important (around 111 points). Looking at the dynamics of the two previous downward impulses, there is potentially still room for growth, even in the vicinity of 117 points where we also see the local Q2 2023 highs. Such a scale would also be identical to that of March 2020 when bonds gained dynamically amid Fed stimulus programs and the prospect of a severe global recession. On the RSI side, we see the first 'overbought' signal that could be a harbinger of a cooling off in the form of a correction or sideways trend.
Source: xStation5
