To The Moon

The stock and bond market are volatile in recent weeks. However, there is a very certain investing opportunity: US Treasuries will rise as the fund rate are already very high.

Let's look at the fundamentals and technical analysis of US Treasuries!

Fundamentally - Treasury yields already peak

1.Interest rate will peak soon -only 0.75% from the expected fund rate

Analysts currently believe that

Fed will stop raising rates to between 5.25%-5.5%, and will not cut rates without a recession.

For reference, current fund rate is 4.5%-4.75%.

data from cmegroup

Current US Treasury yields already priced in a relatively hawkish rate path.

Therefore, we believe that there is limited room for further upward movement in US short-term treasury yields, and it is difficult for the US 10-year Treasury yieldsto break through the peak of4.33% caused by the UK pension crisis last year.

2. Fed won’t stay hawksih for long due to the bank run

Bank run is the inevitable consequence of aggressive rate hike.

Even though the Fed and large banks have temporarily solved the liquidity problems, the problems in the banking business will not be fundamentally solved. The only solution is the Fed to begin a rate-cutting cycle.

Fed already announced Bank Term Funding Programto help banks fund, which reverses its balance sheet runoff trend since 2022.

Thus, we believe that Fed may remain to increase 25bps in March. However, to stabilize finance system, Fed won’t express more hawkish stances.

The US 2-year and 10-year Treasury yields also priced in market expectations of Fed pivot and dropped much after the bank run. They immediately dropped after the banking crisis.

Therefore, allocating US bonds is a good choice for now from fundamentally.

Technically - Rally Will Start After Double Bottom Pattern Emerges

It should be noted that rate hike decision on Wednesday might drag the US Treasuries down. But it forms a double bottom pattern.

It means that after the emergence of double bottom pattern, $iShares 20+ Year Treasury Bond ETF(TLT)$ is highly likey to rise above the resistance level of $108.

If you think that $iShares 20+ Year Treasury Bond ETF(TLT)$ has little gains in the Treasury rally wave, you can also look at $Direxion Daily 20+ Year Treasury Bull 3X Shares(TMF)$.