Seasonality and the COT Report suggest Treasury futures could be rolling over sooner rather than later.
We were early to begin doubting the Treasury rally, we know that. But we can’t help but believe the bond market has gotten ahead of itself. Overseas buyers seeking yield and domestic buyers seeking safety from a recession that might not materialize have pushed the Treasury market to levels that appear to be unsustainable.
Further, the September Treasury futures are going into expiration, which often exaggerates these types of moves. With the first notice day looming, there is a probable chance the landscape changes in the coming weeks. If you are unfamiliar with first notice day, it is the deadline in which futures traders who are long the market must be out of positions to avoid the risk of receiving a delivery notice (obligation to take delivery of the underlying asset) from the futures exchange. First notice days are notorious for ending dramatic trends in many of the commodity markets. Let’s look at a few things that could break the Treasury market sooner rather than later.