JPMorgan Says Rally in Treasuries May Be Nearing a Turning Point

Treasuries may have one last rally before turning, according to technical strategists at JPMorgan Chase & Co.

Sell signals triggered in U.S. equities may give rise to increased volatility and more appetite for the safety of fixed income before investors pull back, according to Jason Hunter and Alix Tepper Floman, who monitor data to discern market trends.

“While Treasury technicals are getting more in line with a setup that suggests the December-February rally has run its course, we are cognizant that a short-term S&P 500 pullback can drive a last-gasp flight-to-quality flow,” the strategists wrote in a report Feb. 21.

Treasury 10-year yields have dropped more than 40 basis points since the start of the year, reaching as low as 1.44% on Friday, as concerns grew about the economic impact stemming from the coronavirus outbreak. The International Monetary Fund said Saturday that it had cut its forecast for global economic growth.

The 30-year yield fell to a record low on Feb. 21 as the virus outbreak worsened outside of China.

Many investors continue to expect yields to drop further, with Asset Management One Co. seeing the 10-year at zero possibly within two years, and BlackRock Inc. saying Treasuries are “a resilience play that makes sense.”

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For the JPMorgan technical strategists, there could either be a sharp decline for 10-year yields from the current 1.47% toward a range of 1.285% to 1.36%, or an increase through 1.535% to 1.58% that would support and confirm a trend change.

The current setup “leaves us looking for high frequency price action that suggests buying pressure exhaustion,” the strategists wrote. “The last step could be a doozie,” they said.

— With assistance by Ruth Carson

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