LIVE MARKETS-Benchmark Treasury yield on the back foot ahead of the Fed

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BENCHMARK TREASURY YIELD ON THE BACK FOOT AHEAD OF THE FED

The U.S. 10-Year Treasury yield drifted higher on Tuesday, recovering from multi-week lows in the previous session, as stocks stabilized following Monday's bloodbath and investors looked ahead to the Federal Reserve's comments after its two-day policy meeting which ends on Wednesday.

The FOMC is widely expected to keep its benchmark overnight interest rate in the 4.25%-4.50% range at the end of its two-day policy meeting. Powell will likely strike a cautious tone in his post-meeting press conference and keep the central bank's options open to allow policymakers time to assess how President Donald Trump's administration will reshape the fiscal landscape.

Additionally, markets face December PCE price data on Friday.

Meanwhile, the 10-year yield US10YT=RR, which ended at 4.549% on Tuesday, is now dipping to around 4.52%.

After rising for 24-straight trading days through last Friday's close, the yield's 21-day moving average is now on pace to tick down for a third day in a row:

Subsequent to significant yield peaks in October 2023 and April 2024, once the 21-DMA topped and ticked down two trading days in a row, the yield had entered into what would prove to be a protracted decline.

Therefore, given this pattern, the yield appears to be on the back foot with potential for a deeper retreat.

Of note, however, when the 21-DMA ticked down two-straight days in early December, the yield did find support at another Fibonacci-based moving average, the 55-DMA, and quickly resumed its uptrend.

Last Friday's yield low was at 4.498%, and the rising 55-DMA is now at 4.4685%.

Thus, traders are still watching to see how the yield acts vs its 21- and 55- day moving averages.

A close below the 55-DMA can suggest a deeper decline with another Fibonacci-based moving average, the 89-DMA, now around 4.30%.

The weekly Ichimoku Cloud now spans from 4.34% down to 4.14%, while the early December trough was at 4.126%.

If the yield quickly reclaims the 21-DMA, which is now a hurdle around 4.63% and the January 23 high at 4.664%, it can refocus on 5.021% and above.

(Terence Gabriel)

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