Treasury bonds got savaged yesterday on news that housing starts had improved. The selling seemed a tad overdone — not just because it’s unlikely the pace of the most turgid economic recovery in U.S. history is about to improve, but also because first-time home buyers have effectively been shut out of the market. Neither factor seemed to be weighing on investors’ tiny brains, however, and so, in their frenzy to dump Treasury debt, they acted as though the dreaded Fed tightening would soon be invoked to head off runaway inflation and a too-hot economy. At press time it was impossible determine which month the tightening was thought most likely to occur, although June and September have been popular choices in recent weeks.
All that aside, T-Bond futures look like they will need to correct somewhat more before the selling abates. Specifically, I expect the June contract to fall at least to the 158^14 target shown. That’s the Hidden Pivot midpoint support of the large pattern, and although the pattern itself is far from textbook perfect, it will do for our purposes. We’ve been looking for an opportunity to re-open a bullish position in a corresponding vehicle, TLT, but this task will have to wait, at least for the time being.