JPMorgan ChaseStrategist Jason Hunter and others said the rally in medium-and long-term Treasuries showed early signs of exhaustion. They added that medium-and long-term Treasuries triggered "multiple systemic sell signals", a harbinger of a bearish reversal and a renewed steepening of the curve.
After months of gains, momentum, high-frequency positions and cross-market indicators show that Treasuries are overbought.
Strategists expect 10-year yields to return to 1.255-1.29% (200-day moving average, 38.2% pullback after July 2020) and 1.18-1.21% ("break the gap" in February).
With this week's rebound, JPMorgan's dollar-weighted bearish / bullish ratio z score is "back in the overbought zone".
From a cross-market perspective, the Treasury market also looks overdone, with 10-year yields 1.5 per cent lower, equivalent to 15-20 basis points, and a bearish reversal is expected in the coming weeks.