LIVE MARKETS-Benchmark Treasury yield: A coming surprise up its sleeve?

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BENCHMARK TREASURY YIELD: A COMING SURPRISE UP ITS SLEEVE?

U.S. Treasuries rose across the board on Tuesday, pushing yields to multi-week lows, following a surprisingly strong seven-year note auction that quelled concerns about diminishing demand for government debt and a softer-than-expected report on job openings for June, suggesting pockets of weakness in the labor sector.

Investors were also positioning ahead of Wednesday's Federal Reserve decision. While the Fed is broadly expected to keep its benchmark overnight interest rate in the 4.25%-4.50% range when its two-day meeting ends, some market participants believe the central bank could likely signal potential easing in September.

On Tuesday, the U.S. 10-Year Treasury yield US10YT=RR slid nearly 10 basis points to end at 4.328%. Now on Wednesday, the yield is rising to around 4.36%.

In any event, traders continue to contend with an especially range-bound market, which has shown little sustained trend.

With this, historical volatility measures remain especially compressed. Since mid-June, weekly Bollinger BandWidth has been essentially flat-lining at its lowest levels since September 2018, or a near seven-year low.

Meanwhile, the reading on a monthly basis is even tighter, having contracted to its lowest level since October 2007, or a near 18-year low.

Compressed BandWidth is directionally agnostic. However, it does flag a market which is ripe for much more spirited action, or indeed, its next trend.

Thus, the Treasury market may well have a coming surprise up its sleeve.

More recently, the yield has been bounded by 4.187% on the downside, and 4.495% on the upside.

There is a resistance line from the October 2023 high which is now around 4.73% on a weekly basis. There is a long-term resistance line from the 1981 high, which is now around 4.810% on a monthly basis, and essentially coincides with the 4.809% January 2025 high.

The April 2025 trough was at 3.86%, and the support line from the April 2023 low is now around 3.83% on a weekly basis.

Whatever the catalyst may prove to be, traders remain on guard for a range resolution. And given compressed historical volatility across multiple time frames, momentum on such a breakout may be surprisingly strong.

(Terence Gabriel)

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