LIVE MARKETS-Benchmark Treasury yield coiling ahead of CPI

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BENCHMARK TREASURY YIELD COILING AHEAD OF CPI

U.S. Treasury yields rose on Friday, and with that, the benchmark 10-year note yield scored its first weekly gain in three weeks ahead of this week's inflation data.

The consumer price index (CPI), which is due on Tuesday, will heavily influence rate expectations for the Federal Reserve. Interest rate probabilities are now calling for around 58 basis points of rate cuts through year-end.

On Monday, the U.S. 10-Year Treasury yield US10YT=RR is edging down to around 4.27%. In any event, traders continue to contend with an especially range-bound market, which has shown little sustained trend.

Historical volatility measures across longer-term time frames remain especially compressed. In late-July, weekly Bollinger bandwidth hit its lowest level since September 2018, which is nearly a seven-year low. So far it's barely budged off that level.

The reading on a monthly basis is even tighter, having now contracted to its lowest level since October 2007, or nearly an 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.

Traders are watching support at the lower weekly Ichimoku cloud boundary, which now resides around 4.20%, and the early-July and early-August lows, which were both at 4.187%.

The next levels below here are at the early-March and early-May lows at 4.124%-4.10%.

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.

The upper weekly cloud boundary is now around 4.41%, and the mid-July high was at 4.495%.

There is a resistance line from the October 2023 high which is now around 4.72% on a weekly basis. There is a long-term resistance line from the 1981 high, which is now around 4.800% on a monthly basis, and essentially coincides with the 4.809% January 2025 high.

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

(Terence Gabriel)

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