08-24-2018: September 10-Year Treasury Notes: Flight to Safety Appears Temporary but Is It?

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calendar Spread

Level Table
Other Factors


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4 : : : : :5



Treasury note prices showed surprising strength recently amid an overall longer-term downtrend. Recent events in foreign markets caused some investors to turn to U.S. treasuries both for safety and yields, but the factors involved look very temporary. Foreign governments are terminating their bond-buying programs, weakening bond prices there, and creating more interest in U.S. treasuries. However, the U.S. stock market strength continues to outweigh other factors causing a possible resumption in downward pressure on notes, which "hate good news."

However, having said that, our technical indicators favor a continued upmove by a very slim margin. One thing that could cause further treasury note strength is a potential sudden shock to the stock market as confidence in the U.S. Government erodes with increasing scandals coming to light in a swamp of Republicans facing criminal charges including manipulation of markets.

Intermarket Analysis

We fed Treasury Notes, Treasury Bonds, and Eurodollars into a neural network to get the following result:

Parabolic Chart

September 10-Year Treasury Notes:

Parabolic Chart

Nirvana Chart

September 10-Year Treasury Notes:

Initial Chart

News Analysis

Safe haven buying of notes has not rekindled as a result of fresh tariff implementations. An ever-growing supply of U.S. instruments to pay off huge debt is causing foreign investors to moderate interest in U.S. notes. A recent issue of $986 million in troubled State of Illinois bonds resulted in higher-than-expected yields as investors priced them down on high volume. There is also an idea that the unwinding of the Federal Reserve's bond buying program will have greater effect than raising interest rates. Producer Manufacturing Index readings are anticipated to be soft. The Kansas City Fed thinks the PMI will be unchaged in the next report. Ongoing unemployment claims are upticking a bit, but overall have been supporting the bulls by dropping earlier. Until the U.S. Fed Chairman makes a presentation later, ongoing Jackson Hole meetings are expected to have little impact. Treasury trade should be wary of surprise headlines from U.S. / Chinese trade talks.

The housing price index made a minimal uptick. New home sales are forecast to have a modest uptick. Most investor eyes are currently on the Jackson Hole Economic Policy Symposium which will feature presentations by major center bankers.

Fed members seem split on the direction of inflation causing the yield on the 10-Year treasury note to fall to 2.824%, the lowest level since July 6th. Note yields move inversely to prices. Minutes from the Federal Open Market Committee gathering showed members confident that "strong" economic growth wil persist for months to come. Officials said it would "likely soon be appropriate to take another step in removing policy accommodation," which is considered an indicator for a looming rate hike widely expected.

A nine-member delegation from China will begin to speak to U.S. officials in Washington to find some way of relieving friction between the two countries. The President isn't expecting much progress from the talks. The President is also trying to get the Fed to curb interest rates to further reward his Wall Street buddies.

As the Bank of Japan considered tweaks to make its stimulus program more sustainable, a selloff in comparable Japanese bonds helped American bonds. Japan is trying to fight stubbornly low inflation there. The Bank of Japan aims to hold its 10-year yield at around 0% through the use of bond purchnases. But expectations for a less accommodative policy from the Bank of Japan also helped spark selling in Treasurys. Analysts consider that the European Central Bank and Bank of Japan capped U.S. bond yield rises, as low interest rates overseas have pushed investors into higher-yielding U.S. debt, supporting Treasuries. Morgan Stanley says "fade" any selloff in U.S. Treasuries. Japanese Central Bank Governor Haruhiko Kuroda suggests the BOJ might make its first tweaks to monetary policy there since 2016.

For most of the year up until the past May, Treasuries fell as a combination of rising stock market and strengthening of U.S. economy caused investors to look away from safety assets like bonds. Risk assets were heavily in demand. A higher Fed Funds rate gave investors another reason for dumping U.S. treasuries. Beginning in May, investors began worrying about potential spillover effects emerging market stocks might have on the U.S. financial market. But because of rising interest rates, the longer-term outlook for government bond prices remains bearish. Stocks yields average a 4.8% yield on earnings, substantially above teh 2.8% yield on 10-year treasuries. That is a major reason why a longer-term bond bear market is likelyi to reassert itself once the latest wave of global market selling pressure in emerging market stocks has lifted. U.S. - China tariff problems have spooked markets to cause a temporary flight-to-safety trend. But rising economic prospects for the coming year will reassert pressure on notes, many analysts observe.

Point & Figure Chart

131.5I                                                                  R  8/21
     I IMM - Sep-18 Treasury Notes, 1/32 pts $100K Cm.=0.03  Lim.= 2.3
     I                                        X X
     I                                        XOXO
     I                                        XOXO
     I                                        XO OX
     I                                      X X  OXOX
     I                              XO      XOX  O OXOX
     I                              XO      XOX    OXOXO
     I                              XO      XOX    O OXO
     I                              XOX X X XO       OXO
     I                              XOXOXOXOX          O            XO
     I                              XO OXOXOX          O            XO
     I                              X  OXOXO           O            XO
     I                              X  OXO             O          X XO
     I                      X       X  OX              O        X XOXO
     I                      XOX     X  O               O        XOXOXO
     I                  X   XOXO    X                  O        XOXOXO
     I                  XO  XOXO    X                  O        XOXOXO
     I  X               XO  X  O    X                  O      X XO   O
     I  X   X           XOX X  O    X                  O  X X XOX    O
     IX X   X         X XOXOX  O  X X                  OX XOXOXOX    O
     IXOX   X         XOXOXOX  OX XOX                  OXOXOXOXOX    O
     I O O  XO      XOXO   O   OXOXOX                  O OXO O OX    O
     I   O  XOX   X XOX        OXOXO                     OX    OX    OX
     I   OX XOX   XOXO         O O                       OX    O     OXO
     I   OX XOX   XOX                                    OX          OXO
     I   O  X   X XOX                                                OXOX X
     I     O   OX XO                                                 O OXOXO
     I         OXO                                                     OXOXOX X
     I         O                                                       OXOXOXOX
     I                                                                   OXO O
     I                                                                   OX
     I                                                                   OX
     I                                                                   O
                             1111111                 111111
Our computer tells us a non-conventional reactive approach works best for on p&f charts. Therefore the above chart is taken as giving a buy signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical low and a weak seasonal down period.

Cyclicals Cyclicals Seasonals

Internal Program

Our best-performing internal program is It is giving a buy signal.

Internal Printout 1 Internal Printout 2

Results of for (blue lines = successful trades, red, unsuccessful): (Always in the market.)


Third System Confirmation

Our third system has triggered a buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


The point value is $1,000. Initial margin on a single contract is $1,155 . Use of options is not advised.

Historic Range

Scale traders are not a factor in this price range.

Historical Chart

Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-short. (Commericials, also.)

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3

Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to down is imminent near a volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Buy (1) Treasury Notes 119.5 December Call and Sell (1) Treasury Notes 121.0 December Call @ 1.00 to the sell side or better.

o 1 o 2 o 5

Calendar Spread

What the Sep. - Mar.. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down in the long run. This diagrees with out ultimate conclusion. The best time to enter or leave the above spread is when it is at 0.20 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at 0.40 or wider buying the far as prices are rising and then selling the near. Currently, we are at the sell the far, buy the near point.

Level Table:

Level Table

The path of least resistance is up.
128.0|                                                                  R  8/21
 IMM - Sep-18 Treasury Notes, 1/32 pts $100K Cm.=0.03  Lim.= 2.3
117.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.740
             1 1 1 1 1 1 1                                            
       8 9 9 0 0 1 1 1 2 2 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8           8
       2 0 2 0 1 0 1 3 1 2 1 3 1 2 1 2 1 2 1 2 0 2 0 2 0 2           2
       3 6 0 4 8 1 5 0 4 9 6 0 3 8 4 8 2 6 0 4 8 2 9 3 6 0           1

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 8/21 ).

Intraday Chart

                 Risk Versus Opportunity Report

                 TYU8    September Treasury Notes

                      High Price:  121.87
                   Current Price:  120.45
                       Low Price:  119.74

                            Risk:  0.012
                     Opportunity:  0.024

                    (O/R) Ratio =  2.000

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart + 1
Nirvana Chart - 1
News - 1
Point & Figure + 1
Cyclicals - 1
Seasonals - 1
Internal System 1 + 1
Internal System 2 0
Third System + 1
Historic Range 0
Commitment of Traders - 1
Range/Volatility - 1
Level Table + 1
Other Factors + 1
Total + 1
Place 12 September Treasury Notes on a Buy Watch with stoploss @ -1.58 (-1-37/64) below the get-in point when recent price is represented as "120.45".