Following futures positions of non-commercials are as of October 9, 2018.

10-year note: Currently net short 622.4k, down 117.8k.

Back in July 2016, the 10-year Treasury rate (3.14 percent) bottomed at 1.34 percent.  Since then, it has made higher lows.  A rising channel drawn thereof extends to 3.5-3.6 percent.  There is also horizontal resistance at that level.  In a best-case scenario for bond bears, this resistance could get tested.

Last Friday, the 10-year yield rallied to 3.25 percent intraday before coming under pressure.  As recently as August 22, these notes yielded 2.81 percent, meaning the yield jumped 44 basis point in less two months.  In September last year, they yielded 2.03 percent.  They have come a long way.  On nearly all timeframe, conditions are overbought.

Eight sessions ago, the 10-year rate broke past the mid-May high of 3.12 percent.  This resistance goes back to at least June 2003.  Thus the significance of breakout retest, which is just a few basis points away.  Bears would love to see renewed selling (of these notes) at/near this yield, but odds are they have to grapple with bulls who likely will be more interested in going long than just recently.  If and when the latter put their foot down and get aggressive, short squeeze is a real possibility.  Non-commercials have cut back the past couple of weeks, but remain heavily net short.

30-year bond: Currently net short 138.4k, up 18.6k.

Major economic releases next week are as follows.

Retail sales for September are due out Monday.  Sales increased 6.6 percent year-over-year in August to a seasonally adjusted annual rate of $509 billion.

Tuesday brings industrial production (September), JOLTS (August), NAHB housing market index (October) and Treasury International Capital data (August).

Capacity utilization in August was 78.1 percent.  Utilization has inched lower since April’s 78.2 percent.  The cycle high 79.6 percent was reached in November 2014.

Non-farm job openings rose 117,000 month-over-month in July to 6.94 million, a new record.

Builder sentiment was unchanged m/m at 67 in September.  Last December’s 74 was the highest since 75 in July 1999.

Foreigners’ net purchases of US equities in the 12 months to July totaled $28 billion, down from $135.7 billion in January.