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Yields Soar and the Downtrend continues

David Becker
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The stronger than expected ISM manufacturing numbers was the first in a series of better than expected data that helped push the 10-year yield above 2.8% which has been solid resistance for yields during the past three months. Although it is unlikely that bond prices will decline significantly prior to the Fed beginning the process of tapering, there is a strong chance that prices will continue their trend lower.

The IEF (Barclays 7-10 year yield ETF) tracks the long end of the yield curve. If economic data in the US and globally continue to perform at a better than expected rate, yields will likely move higher, driving the price of the IEF lower.

On Monday, ADP reported a stronger than expected private payroll report. The ADP print was 215,000 compared to the 170,000 expected by economists. The October series was revised higher by 54K to 184,000, with most of the jobs coming in the services sector. Manufacturing jobs increased by 18K in November, while financial jobs grew at 5K.

Yields in the 10-year space climbed up to 2.84% which is the highest print on the 10-year in the past 3-months. The IEF is poised to break through support levels seen near the recent lows at 100.50, and could test the 2013 lows near 98.50. Momentum on the ETF is negative as the MACD (moving average convergence divergence) index generated a sell signal where the spread (the 12-day moving average minus the 26-day moving average) crossed below the 9-day moving average of the spread.

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