US inflation report key for potential bullish bond breakout

US benchmark Treasury futures look to be breaking higher, implying lower yields ahead
TLT ETF should outperform if US yields were to push lower
Tuesday’s US CPI report looms as a make-or-break event for long bond bulls

Longer-dated US bonds are threatening to break higher into what’s arguably the most important US CPI report in nearly a year. What happens next will be important for financial markets given the implications for global borrowing costs.

US benchmark bond futures breaking higher

Last week I nominated US 10-year bond futures as the most important chart in the financial world in early 2024, noting it had broken its 200-day moving average before doing away with a horizontal level that had acted as support and resistance on numerous occasions dating back six months.

As futures tend to drive movements in Treasury markets, the development signaled the possibility that US bond yields may continue pushing lower, an outcome that would have implications for multiple asset classes.

For those who would like the delve a little deeper, you can read the full note here.

When it comes to assets likely to benefit from bullish bond breakout, few screen as strongly as iShares’ 20-Year plus Treasury Bond ETF, known for its ticker code ‘TLT’. With US 10-year futures threatening to break higher, it suggests Treasuries with longer maturities may do the same, pointing to potential upside for TLT given it tracks a basket of bonds with 20-years or longer until maturity.

TLT testing 50-week moving average

Looking at the TLT weekly, the price sits at an interesting technical level into what’s arguably the most important US inflation report for almost a year following the hot January result a month ago. After rebounding from what’s now a major triple bottom at $82.43, TLT is now testing the 50-week moving average, a level that has capped advances on multiple occasions since early 2022, including the past few months.

While it’s been unsuccessful thus far, sitting in what looks to be a bullish pennant, it points to the potential for TLT to join other rates indicators in threatening to break higher. A break through the 50-week MA and pennant puts the December 2023 high around $100.57 in sight. A stop loss below the 50-week MA would provide protection against reversal. Beyond, $104.00 would be the next upside target for potential longs.

US CPI a make-or-break moment for long bond bulls

With the February US inflation report carrying the potential to answer whether the hot reading in January was an anomaly or start of a potential trend, we have an obvious catalyst that could make or break the bullish bond breakout trade idea flagged today.

For those considering the trade, please be aware the US Treasury will be auctioning off 10-year notes and 30-year bonds this week, providing other major risk events for longer-dated yields

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.