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Pro: Why I’m Buying Bonds

Bonds
Chris Ratcliffe | Bloomberg | Getty Images

Ten-year bonds have broken out of a consolidation pattern and appear ready for more gains.

Weaker-than-expected manufacturing data in both China and the euro zone have pushed Treasury yields lower, and the 10-year yield now seems poised to test recent lows of 1.58 percent. Since the market remains unsure of the roles of gold and silver as safe havens, U.S. Treasurys should attract a disproportionate share of "risk-off" dollars.

One argument I hear frequently is that 10-year yields have limited downside, given their current level. However, this argument falls apart when you consider that the German 10-years yield 1.21 percent, which clearly underscores a thirst for perceived safety.

I have adopted a bullish bias in June 10-year futures at the current level of $133.10, with an upside objective of $134.07. On the downside, $132.24 would be a reasonable stop-out level.

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