LIVE MARKETS-Benchmark Treasury yield still a coiled spring

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BENCHMARK TREASURY YIELD STILL A COILED SPRING

U.S. Treasuries fell on Monday, pressured by weakness in Japanese and European government bonds following comments from Bank of Japan Governor Kazuo Ueda, who signaled that conditions were aligning for a possible interest rate hike.

The U.S. 10-year Treasury yield US10YT=RR jumped around seven basis points on Monday to end at 4.096%. Now on Tuesday, the yield is edging up to 4.11%.

On the yield charts, traders are noting that for most of this year, sub-4.00% dips have quickly led to sharp snapbacks.

Just last Friday, after falling to 3.961%, the yield rallied smartly.

Indeed, a wealth of support resides just below 4.00%, including the October lows at 3.936% and the log-scale support line from the April 2023 trough, which is now around 3.91% on a daily basis. The rising 200-week moving average is now also around 3.91%.

A weekly close below these levels may spark an especially sharp slide because monthly Bollinger bandwidth, a historical volatility measure, has contracted to its lowest level since October 2007. Compressed bandwidth is directionally agnostic; however, it does suggest a market that is ripe for more spirited action, if not its next trend.

Therefore, a downside range resolution could quickly take on a life of its own, with the upper boundary of the monthly Ichimoku Cloud now around 3.65% and the September 2024 low at 3.599%. However, the April 2023 trough, which was at 3.253%, could be a magnet further out.

If the yield can keep bouncing off support, it can maintain the contracting range, which has been in force over the past several years, and suggest another oscillation higher.

Initial resistance is now at the mid-November high at 4.168% and the descending 100-day moving average, which has capped strength since early August, is now just over 4.17%.

A push above the 20-month moving average, which is now around 4.23%, can flip pressure to the upside with the upper boundary of the weekly Ichimoku Cloud at 4.36%, and the log-scale resistance line from the October 2023 high now around 4.65% on a daily basis.

A yield thrust above the resistance line can suggest the longer-term range is instead resolving to the upside.

(Terence Gabriel)

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