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- US 10Y yield has been constantly retracing lower in the past few weeks after hitting a local high of 1.77% on March 30, which corresponds to the 50% retracement of the 0.3140% - 3.26% range.
- While some investors are saying that the consolidation is a supply shock as US Treasury is borrowing less than expected due to the run down in TGA cash balance, the rising uncertainty over the Covid19 situation could also explain the recent increase in demand for 'safe' assets.
- In addition, the significant contraction in Chinese credit and liquidity since the start of the year could weigh on risky assets in the coming months and therefore result in lower LT bond yields due to higher uncertainty.
- As governments are delaying the global reopening, the probability of a renewed period of lockdown in winter 2022 keeps increasing and therefore could also result in higher demand for US Dollars and Treasury Bonds.
- The 10Y recently broke below its 100D SMA at 1.4950% last week; next support to watch on the downside stands at 1.44% (38.2% Fibo).