Resistance is futile

It looks like we're going to test two important resistance levels. First, 4.50% on the 10-year. We did close below that a couple times in the last 2 weeks, but always by less than 1bps. Another leg of today's rally could blow through that level.

I think that resistance will hold for now. The fundamentals don't support an inversion of more than 75bps between funds and 10's. The market still believes that the curve will eventually have a "normal" slope. This means that in order to invert by more than 75bps, you have to believe the Fed is going to cut 5-6 times and leave rates at that level for most of the next 10-years. Not gonna happen.

The other important level is 2-10 slope at 0bps. Currently we're -5bps, so I doubt we test that level today. But I think its clear that the market is biased towards a steepener whenever the odds of a Fed cut improve. If the Fed were to remove their tightening bias at the March 21 meeting, I think we'd blow right through 0bps.

So that makes me bullish on 2's for now. My longer-term forecast is for a flat slope between FF and 2yr, so my bullish stance is very temporary.