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.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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