Saxo Morning Call

How long can Treasuries hold these levels?

Michael McKenna
Head of Editorial Content, Saxo Bank

US Treasury bonds are in focus after the 10-year yield closed last week just shy of the 2.80% level; two-year Treasuries closed around 2.26%.

In Saxo Bank fixed income specialist Althea Spinozzi's view, these levels appear depressed due to the presence of multiple risk factors on the horizon. "We foresee the US Treasury needing to issue new bonds to cover deficit spending, with sentiment surrounding the US/China another key factor. At present, foreigners hold 42% of US dept – the lowest such reading since 2003," says Spinozzi.

"Ultimately there are more reasons to widen than to tighten here," Spinozzi concludes.

In the commodities space, Saxo Bank's Ole Hansen reports that crude oil prices are caught between trade and geopolitics as tensions in the Middle East rise on what the US alleges to be a chemical attack by Syrian government forces in Ghouta.

"Oil remains rangebound but we see the outlook as skewed towards finding support, particularly given over one million lots of speculative longs," says Hansen.

Precious metals are also in focus given the volatility seen in both geopolitics and equity markets, says Hansen, with silver likely primed to benefit more than gold from a metals rally. "Funds are holding a record short in silver with open interest at a record high; major moving averages are providing significant resistance between $16.55 and $16.77/oz," notes Saxo's head of commodity strategy.

In forex, Saxo Bank head of FX strategy John Hardy is focusing on sterling given its strongest weekly close in several quarters, although he notes that the FX space has proven resilient to the volatility seen in stocks.

"We are watching 0.87 in EURGBP as there is significant room to the downside if this level breaks," says Hardy.


On the data front, the Norwegian CPI release Tuesday and the US CPI and Federal Open Market Committee minutes Wednesday represent the key event risks for forex traders.


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