Since reaching a high on December 16 of 3.7105%, swaps have fallen back and traded sideways.
On the technical side 3.6797% is the 38.2% Fibonacci retracement from the June 2007 highs of 5.9630% to the December 2008 lows of 2.2683%. This is a key technical level which has held recently and swaps last traded above it in April of 2010. Currently, longer term support appears to be 3.1402% which is the 23.6% Fibonacci retracement based on the same levels.
On the bullish side, the 50 DMA has crossed the 200 DMA and there is no sign of treasury issuance slowing down as the US continues to forecast large deficits. On the bearish side, any problems in the market such as continuing erosion of confidence in the Euro Zone may cause investors to buy treasuries.
Bottom line: There is uncertainty as to where rates are headed as the sideways trading indicates. The language of the FOMC rate decision tomorrow may give some clarity.
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