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US 30 YR T-Bond Futures have soared 8.40 percent so far this year. The 30 year started the current leg of a strong rally after the FED raised short term interest rates in December 2015 for the first time since 2006.This would seem odd as the rise in interest rates should lead to a decline in the prices of treasuries. However, after an initial knee-jerk reaction, the markets seem to have concluded that the chances of long term rates going significantly higher seem to be low at the moment, and thus the appeal of the 30 year has remained.
The U.S. government bond market was on a bull string driven by investor’s bond frenzy that has beeen further fed by slowing global growth and growing skepticism about the Federal Reserve's ability to raise interest rates again this year. This coupled with jitters across global equity and currency markets, and increasingly dovish postures being adopted by central banks around the world, has ignited a new wave of flight to safety flows into the one asset that is currently deemed to be as close to a risk free asset as is practically possible in financial markets – Long Term US government debt.
Fed Chair Janet Yellen told Congress on Wednesday that the economic anxiety and market turbulence around the world could depress the U.S. economy’s growth and slow the pace of Fed's interest rate hikes.
On Thursday, the 30 Year Treasury Bonds posted a 40-year high. However, U.S. Treasury bond futures started to decline sharply from last Friday as US stocks rallied after data released revealed that U.S. consumer spending recaptured momentum in January, indicating the economy may not be as slow as investors had feared in recent weeks.
Fig: US 30 YR T-Bond Daily Technical Chart
On the Daily chart, price remains above the major moving averages. Price is in a strong uptrend as it is driving higher strongly after every small pullback, supported by an upward sloping diagonal support. However, the price started to pullback strongly after hitting the 40 year high on Thursday. Price dropped 1.08 percent on Friday which is the highest fall since 29th December, 2015. Today price has dropped 0.40 percent so far. Immediate support is at 165.20. If it finds a toehold at 165.20 it would resume the strong rally. Conversely, Acceleration in current bearish momentum would lead it towards the 163.60 support level, on breaching and closing below the 165.20 level.
Buy Digital Call at 167.50 and Digital Put at 170.50. Buy Digital Put on a break of 164.90 and Digital Call on a test of 163.90.