Overtime

Rates and Treasury ETFs

Good morning,

This week we’re going into Overtime on all things related to interest rates and Treasury ETFs. They’re always at the center of the financial universe, but after a huge move up over the past 3 months, we’re seeing decade-plus highs in rates at the ultra-short end while the long-end tests its cycle highs from last year.

So, what do the technicals say and how do you position for it?

Today’s report will review:

• The shape of the yield curve

• Technicals for key tenors

• What Fed fund futures are saying

• and ETFs to use and avoid

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Yields sharply higher over the past 3 months

Belly of the curve remains below pre-banking crisis levels

As shown in the chart above, yields now (blue) are sharply higher across the curve than they were 3 months ago (red). And at the very short end and the very long end, they are above where they were just before the regional bank crisis that sent yields sharply lower in March.

The exception is the belly of the curve in 2s through 7-year yields. Given the breakouts we’re about to explore, the most attractive part of the curve right now is the ultrashort (1 year and under) due to less duration risk and higher coupon payments.

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Technicals for key tenors

30-year yield has broken out

This was one of my most important charts for the second half of the year, and we’ve now gotten a decisive breakout. Technically, there is still the October high of 4.4% to call resistance, but this triangle pattern conservatively measures to 4.5%.