The yield of the U.S. 10-year Treasury Notes surged 13.47% for the week to close at 2.409% on Friday as hedge funds were dumping the longer-term Treasuries in anticipation of the Fed’s first rate hike before the end of the year. The global bond sell-off could have been triggered by the previous Friday’s release of the second estimate of the first-quarter U.S. GDP by the U.S. Department of Commerce, showing that U.S. GDP contracted 0.7% in the first-quarter this year, instead of the initial reading of a 0.2% gain. The number still beat Wall Street economists’ forecast of a 0.9% contraction. 

The yield of the U.S. 10-year Treasury notes jumped 5.38% to an intra-day high of 2.388% on Wednesday, after European Central Bank (ECB) President Mario Draghi said at their conference that the Eurosystem staff macroeconomic projections foresee annual Harmonised Indices of Consumer Prices (HICP) inflation at 0.3% in 2015, 1.5% in 2016 and 1.8% in 2017. In comparison with the last forecast in March, the inflation projections have been revised upwards for 2015 and remain unchanged for 2016 and 2017. HICP is the consumer price inflation measured in the eurozone.

The U.S. 10-year Treasury notes tumbled again on Friday, sending the yield up another 5.76% to an intra-day high of 2.442%, after the release of the May U.S. non-farm payroll report, which came in better than expectations. The U.S. Bureau of Labor Statistics said that the U.S. government and private businesses added 280,000 jobs in May to the U.S. economy, above the 3-month average of 207,000 jobs and the 12-month average of 257,000 jobs, according to our data. More decent numbers like this in the June report could definitely trigger the first rate hike in September. 

As of June 2, there are 674,156 short positions of 10-year U.S. Treasury Notes, traded on the Chicago Board of Trade (CBOE:TNX), by leveraged funds. This is compared to about 384,089 long positions, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday. Hedge funds were staying on the sidelines last week as there was only a net decrease of about 1,801 contracts in short positions from the previous week, where TNX contracts are traded in units of $100,000 face value.

From our technical viewpoint, the yield of the U.S. 10-year Treasury notes could break out the trendline resistance if the U.S. and the eurozone economy show signs of sustainable recovery in the coming weeks. The next technical resistances are 2.42%, or the 38.2% Fibonacci retracement level, 2.5%, and 2.66%, or the 23.6% Fibonnacci retracement level. In the case of a pull back, the near-term support for the yield of the U.S. 10-year Treasury notes is 2.23%, or the 50% Fibonacci retracement level.