LIVE MARKETS-Benchmark Treasury yield poised for 2026 fireworks?

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BENCHMARK TREASURY YIELD POISED FOR 2026 FIREWORKS?

U.S. Treasury yields fell on Thursday after data showed that consumer prices rose by less than economists had forecast on an annual basis last month, even as data lapses from a federal government shutdown raised questions about the accuracy of the release.

The U.S. 10-year Treasury yield US10YT=RR dipped more than three basis points to end at 4.116% on Thursday. Now on Friday, the yield is rising back to the 4.15% area.

On the yield charts, traders are noting that for most of this year, sub-4.00% dips have led to sharp snapbacks. In fact, over the last three months or so, action has the look of a mini inverted head and shoulders pattern, implying the market is poised to move higher.

That said, the yield strength has so far been capped by the lower boundary of the weekly Ichimoku Cloud, which now presents a stiff hurdle around 4.21%, and the 20-month moving average, which is now around 4.23%.

On the downside, a wealth of support resides just below 4.00%, including the October lows at 3.936% and the rising 200-week moving average, which is now just over 3.92%. The log-scale support line from the April 2023 trough is now also around 3.92% on a weekly basis.

A weekly close below these levels may spark an especially sharp decline, given that the 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.

Additionally, in another testament to the extent of the market's compressed volatility, the yield's 2025 range as a percentage of the prior year's close stands at 20.7%, which is its tightest since 1997.

Given that low volatility can be a forecast for higher volatility, a range resolution could quickly take on a life of its own.

On a slide, the upper boundary of the monthly Ichimoku Cloud is now around 3.65% and the September 2024 low was 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.

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 4.66% on a weekly basis. A yield thrust above the resistance line can suggest the longer-term range is instead resolving to the upside.

Meanwhile, a December finish at or below 4.577% will end a four-year streak of higher yield closes.

(Terence Gabriel)

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