The bond bloodbath is overdone. Here’s why it’s time to buy, says trader

Bond yields have risen sharply in the past week, sparking fears of trouble in the Treasury market, but one trader sees a buying opportunity.

Treasury yields were modestly lower on Tuesday. On Monday, the 2-year Treasury yield hit its highest level since 2008, while the 5- and 10-year Treasury yields hit their highest levels since 2010 and 2014, respectively.

Fueling the bearish sentiment about the bond market, influential investors have issued stark warnings on Treasurys, which are less valuable as yields rise. Still, Bill Baruch with Blue Line Futures says the yield moves higher are overdone. Here are his reasons.

• With the European Central Bank convening in Frankfurt later this week, this is a buy-the-rumor, sell-the-news event. In this case, buy the 10-year Treasury.

• Elsewhere in international central bank decisions, the Bank of Japan on Tuesday announced no change to its short-term policy rate.

• Net short positions in the 10-year Treasury have reached record levels, and the note's 14-day relative strength index is historically low.

• As some influential bond investors have issued bearish calls on the market and traders have chased the move, the downside in bond prices appears overdone as net short positions have piled in. It would be prudent to position long in the near term, and look for a rally in the first half of February.

Bottom line: One trader is planning to establish a long position in the 10-year Treasury in the near-term.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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