10-Year Treasury (ZN) Drops Below 0.5% As Fear Grips Market

Over the weekend, a series of events has rocked the market. Investors continue to brace for economic fallout as coronavirus continues to spread around the world. Outside Mainland China, Italy now has the highest infection rate and death toll. It has imposed draconian measure similar to China by locking down Lombardy region and 14 other provinces. The hardest hit in the northern region prohibits travel and cancels all public events. Meanwhile in the US, more cases appear as CDC (Center of Disease Control) finally ships more test kits. As more test kits will be widely available, the number of virus cases would most likely jump in the coming days. As of the weekend, according to the state and local health agencies, governments, and the CDC, there are more than 500 cases of the novel coronavirus in the US. New York, California, and Oregon have all declared a state of emergency. It’s a very fast moving event and the number can change very quickly.

Waves of risk aversion over the weekend triggered the limit down rule in US stock Futures as S&P E-Mini futures sank 5%. An all-out oil price war between Saudi Arabia and Russia also saw Brent Crude Oil sinking 30%. Amid the market turmoil, investors seek safer assets including bonds and gold. The yield on the benchmark 10-year Treasure Notes dropped below 0.5% at one point.  Gold meanwhile crossed $1700 an ounce, hitting the highest level in 8 years. The 50 bps emergency rate cut by the Fed from last week has so far failed to calm the market. As the virus situation is rapidly evolving and in likelihood sees a significant jump in coming weeks / months, the market can remain volatile and see a large swing. In this environment, both bonds and Gold should perform well.

Ten Year Notes (ZN) Daily Elliott Wave Chart

10-Year Treasury (ZN) Drops Below 0.5% As Fear Grips Market

Daily Elliott Wave chart on $ZN_F (10 Year Notes) above shows the rally from October 2018 low is unfolding as an impulsive structure. Up from October 2018 low (117.13), wave (I) ended at 132.13 and wave (II) pullback ended at 127.29. The Notes has extended higher in wave (III) with the extreme 100% – 123.6% extension target at 142.2 – 146.1. It can potentially reach 161.8% Fibonacci extension towards 152 before a pullback in wave (IV) is seen. Expect the “risk-off” environment to stay with us for a while and the Notes can continue to find bid in 3-7-11 swing.