Bonds Aren’t Believing the Decent PMIs, Concerned about Coronavirus?

If more cases are confirmed, prices may gap higher after the weekend.


Outside of the United States, flash PMIs were generally better than expected with only the EU Services and Composite dragged lower by strikes in France.  And although in the US, the manufacturing PMI was weaker, both the services and composite PMI’s were better.  With that being said, 10-year Treasury Notes are up over 20 ticks today and stocks are currently lower.  It appears that, although China is going through great lengths to contain the spread of the coronavirus, ahead of the weekend that markets aren’t taking any chances. A second case in the US was confirmed, this time in Chicago, and the markets don’t want to take any chances that more cases will be discovered over the weekend.

Buying bonds is considered a flight to safety.  When there is uncertainty in the markets, traders sell stocks and buy bonds.  The US 10-year Treasury Note has been in a falling wedge since the beginning of October 2019.  Prices broke out in early January, then pulled back to retest the downward sloping trendline of the wedge on January 8th.  However, the trendline held and prices are on the move higher once again.  Looking at the candles on a daily timeframe, we can see that the market has been nervous this week.  Including today, 10 years have closed all 5 days  this week (although there is still half a trading day left today). Today, price broke through the 50% retracement from the highs on October 4th to the lows of December 19th near 130 00.  It is currently testing horizontal resistance near 130 06.  Above here, resistance comes across at the 61.8% retracement level near 130 15.  Horizontal resistance comes across at 131 06 before reaching the October 4th highs at 132 1. 

Source: Tradingview, CBOT, City Index

On a 240-minute timeframe, as price was moving higher this week out of the falling wedge, it formed a series of higher highs and higher lows.  The trendline below is the first level of support near 129 16.  (Also pay attention to the RSI, as it has moved in to overbought territory, however is not yet diverging with price).  Below that is the prior low at 128 29, and then the confluence of support near the downward sloping trendline on the daily and the 200 Day Moving Average near 128 10.

Source: Tradingview, CBOT, City Index

If there is positive news over the weekend concerning the containment of the coronavirus, 10 years may very well gap open lower on the reopen Monday morning (Sunday evening in US).  However, if more cases are confirmed and there doesn’t seem to be much progress in reducing exposure to the virus, prices may continue to move higher.

From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.