LIVE MARKETS-Benchmark Treasury yield: Pressure in the pipe

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BENCHMARK TREASURY YIELD: PRESSURE IN THE PIPE

U.S. Treasury yields fell on Wednesday in choppy trading as traders evaluated economic releases showing a mixed picture on the U.S. economy ahead of Friday’s highly anticipated jobs report for December.

The U.S. 10-year Treasury yield US10YT=RR fell around four basis points to end at 4.138% on Wednesday. Now on Thursday, the yield is rising back up toward 4.18%.

On the charts, traders are noting that the yield has been especially range-bound across multiple time frames. In fact, Bollinger Bandwidth, a historical volatility measure, on a weekly basis, is at its tightest reading since late June 1998.

Compressed Bandwidth is directionally agnostic; however, it does suggest a market that is ripe for much more spirited action, if not its next trend.

Indeed, given that low volatility can be a forecast for higher volatility, traders are on guard, as a range resolution could quickly take on a life of its own. Of note, from that weekly bandwidth low in late June 1998, the yield collapsed as much as 136 basis points from 5.46% to 4.10% just by mid-October of that year.

Therefore, traders are watching trigger levels.

The mid-December high was at 4.209% and the upper weekly Bollinger Band is now just over 4.24%. The 20-week moving average is now around 4.11% and the mid-December low was at 4.10%.

Thus, a break above 4.24% or so will have the potential to explode higher.

Conversely, a move below 4.10% can threaten the lower weekly Bollinger Band, which is now around 3.98%. The support line from the April 2023 trough is now around 3.91% on a weekly basis.

(Terence Gabriel)

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