10-Year Treasury Looks Set to Decline to at Least the 1.5% Level

Hours before the Federal Open Market Committee announces its interest rate policy, like it is some big mystery, rates are at their highest levels since May.

The 10-year Treasury note sits at about 1.8%, off the July low of 1.3%, the lowest in history. However, FOMC meeting or not, the next few weeks should see this rate decline toward at least 1.5% (light green box), with a very slim chance of a new low into the 1.25% area (bright green box).

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Why? How can that be forecast?

It turns out that using our eyes more and our ears less makes our objectivity increase. In financial markets, objectivity rules subjectivity.

Our ears are always subject to the opinions of others, with their vested interests influencing their "facts" and their enthusiasm influencing our common sense or objectivity.

Loud isn't always true, better or even right. In fact, loud is often wrong, so let's turn down the volume. 

Our eyes are our objective windows into the market's truth, which is typically set up for those to see if the noise can be modulated. Let's see what our objective decision support engine is seeing, which has no ears to confuse it.

First, note the overbought extreme from which these weekly stochastics are being rejected. This is the sign that rates have risen too much and need at least a corrective decline.

Second, the pattern recognition algorithms within the DSE are warning that the rising pattern off the July low isn't impulsive, at least yet, and therefore the window is open for a test of one or both of the green boxes.

Third, the crowd has become very certain, if not complacent, even cheerful about a rate increase, as we are being told that it is the best thing for us, our money and the economy. This can be seen via sentiment measures that show about 90% bullishness regarding rates. 

Combined, as we have been tweeting to our members in our DSE Alerts service, rates should "come in" a bit into next month, before rising sharply in 2017, when the 10-year Treasury note should test the 2.4% if not the 3% level. 

Of course, the opposite is true of bond prices, which have fallen for 14 weeks since the July peak and scheduled for a three-to-eight week rise, about half way back up to the July price high.  

Buckle up for an exciting close on Wednesday.

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For updates on this analysis, as well as other trading opportunities, try our DSE Alerts service for free for a couple of weeks or contract us at support@dsetrading.com

This article is commentary by an independent contributor. At the time of publication, the author had a long position in Treasury bond futures.

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