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Is Fed Hiking Coming to a Close?

By:Christopher Vecchio - CFA

Bonds are behaving as if the Fed is finished raising rates The U.S. 10-year yield is down to 4.412%

  • Long-end U.S. Treasury bonds hit fresh monthly highs today.
  • Fed funds futures are [riced assuming there will be no rate hikes in either December 2023 or January 2024, with small but meaningful odds of a rate cut by March 2024.
  • Volatility is coming down but remains relatively elevated in 30s (/ZBZ3) and ultras (/UBZ3).

Fig. 1: Year-to-date price percent change chart for /ZT, /ZF, /ZN, /ZB, /UB
Fig. 1: Year-to-date price percent change chart for /ZT, /ZF, /ZN, /ZB, /UB

In the week since the (apparent) earth-shattering October U.S. inflation report, bonds have continued to exhibit signs of carving out a major bottom.

Federal Reserve rate hike odds have been zeroed out for December 2023 and January 2024, and there is now a 30% chance of a 25-basis-point (bps) rate cut at the March 2024 meeting, according to Fed funds futures. If the trend is your friend, then the trend is for high bond prices and lower yields, particularly at the long end of the curve.

/10Y U.S. 10-year note yield technical analysis: daily chart (May to November 2023)


The uptrend in the U.S. Treasury 10-year yield has been broken. /10Y remains under rising trendline from the May, July, and September swing lows, as well as the neckline of a head and shoulders topping pattern around 4.472%.

Momentum is pointed lower, with /10Y below its daily 5-, 13-, and 21-day exponential moving average (EMA) envelope—which is in bearish sequential order. Slow stochastics are holding in oversold territory, and exponential moving average (MACD) is trending lower below its signal line for the first time since early-May. The measured move in the head and shoulders pattern continues to eye a target of 3.931% in the coming weeks.

/ZB US 30-year bond price technical analysis: daily chart (May to November 2023)


The long end of the curve remains the most interesting portion of bonds, given the relatively higher volatility at the long end of the curve (IV Rank = 32.8, IV Index = 14.2%).

When we looked at 30s (/ZBZ3) last week, it was observed that “a short put vertical (long 108 put/short 110 put) for the November 24 expiry (10DTE) is suggesting a POP of 97%.” Now, that same trade (3DTE) is pricing in a POP of >99%. Extending the time horizon to 38DTE, the POP is 91%.

The momentum profile is solidly bullish at present. /ZBZ3 is above its daily EMA envelope, which is in bullish sequential order, and has been holding the daily 5-EMA (one-week moving average) as near-term trend support.

MACD continues to trend higher above its signal line and slow stochastics remain in overbought territory. The evidence suggests that the bottom is in place.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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