A chorus of analysts have deemed Treasuries to be 'overbought,' with yields - especially in the riskier, longer-dated securities - too low to reflect current economic conditions and the inflation outlook. But despite evidence of price pressures and continued economic recovery, and with no regard for the May 16 deadline on which the US will reach its legal borrowing limit, buyers may still snap up bonds in the coming days.
For 10-year Treasury notes, a yield of 3.14 percent was viewed as a resistance point past which it would be difficult to descend. Then on Friday they hit lows of 3.13 percent. The next significant point on the downtrend in 10-year yields is 3.05 percent, as identified by RBS Securities in Stamford Connecticut.
But a clear driver for Treasury price action in the coming week has yet to emerge. Some strategists think Treasury prices are still closely tied to the volatility in commodity prices, while other say the relationship that developed early in May when commodities sold off has faded. "Without much on the calendar and no supply going on, we're going to be at the whim of what's going on elsewhere, in Europe and in the commodity markets," said John Briggs, US rates strategist at RBS.
He said that while he was bullish on bonds long-term, he saw a near-term sell-off in Treasuries' future. Richard Gilhooly, on the other hand, saw reasons to predict lower yields. "You're going lower in yield for the next few weeks," he said, adding there would be a "curve flattening as it happens." Data on housing sales and the Philadelphia Fed business index will be potential price drivers, in Gilhooly's view. Another force will be present in the market: the Federal Reserve will buy Treasuries every day this coming week as part of its quantitative easing program. "Play the buybacks," suggested Ian Lyngen, senior government bond strategist at CRT Capital Group in Stamford.