July 28 (Bloomberg) -- Citigroup Inc. cut its short position in Treasury 10-year note futures as the price hasn’t fallen as expected, according to a research note citing technical analysis.
“It really didn’t do anything,” said Tom Fitzpatrick, chief technical strategist in New York, in a telephone interview. “We had a setup that made it look very much like it was going to make a break to the downside, which it did a couple times, but we just didn’t follow through.”
Citigroup set up the short position June 24 in the futures on the note maturing in September 2011 when it traded at 124 14/32. It fell as low as 121 22/32 on July 1 before rallying back to as much as 124 23/32 today, according to Bloomberg Bond Trader prices.
In terms of yield, a daily close above a 3.22 percent for the 10-year note may indicate a move toward 3.76 percent. A daily close below 2.81 percent would question any move upward and may indicate renewed losses in yield toward 2.67 percent, which is the 76.4 percent Fibonacci retracement level, according to the note.
With little movement in the Treasury market, even with the concern the U.S. will fail to pay its bills if legislators can’t strike a deal to raise the debt ceiling by Aug. 2, it’s unlikely anything will trigger the move Citigroup had expected, Fitzpatrick said.
“There’s the danger, if you can’t go down when you’re getting that type of uncertainty, that you might actually swing back in the other direction,” said New-York based Fitzpatrick. “It’s had every chance to go down, it’s had every headline to go down, it hasn’t done so, so it just doesn’t look to be the right trade.
The benchmark 10-year Treasury note rallied today, sending its yield down four basis points to 2.94 percent in New York. A basis point is 0.01 percentage point.
Fibonacci analysis is based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low. It’s based on a formula developed by a medieval mathematician, Leonardo of Pisa, known as Fibonacci, who studied the reproduction rate of rabbits.
--Editors: Paul Cox, Dennis Fitzgerald
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