LIVE MARKETS-Benchmark Treasury yield: Is the lid starting to come off this bubbling cauldron?

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BENCHMARK TREASURY YIELD: IS THE LID STARTING TO COME OFF THIS BUBBLING CAULDRON?

U.S. Treasury yields rose on Monday as traders evaluated whether former Federal Reserve governor Kevin Warsh will bring a more dovish outlook to the U.S. central bank than he had previously. U.S. President Donald Trump on Friday chose Warsh to head the Fed when Jerome Powell's leadership term ends in May. Warsh had a reputation as an inflation hawk in his earlier stint at the central bank, but now advocates for rates to be lowered.

The U.S. 10-year Treasury yield US10YT=RR gained about four basis points to end at 4.277% on Monday. Now on Tuesday, the yield is edging up to around 4.29%.

On the charts, traders continue to note that the yield has been especially range-bound across multiple time frames.

In fact, in early January, Bollinger Bandwidth, a historical volatility measure, on a weekly basis, contracted to its lowest reading since late June 1998. Looking at readings on a monthly basis, the Bandwidth is now at its tightest level since September 2007.

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 have been on guard, as a range resolution could quickly take on a life of its own.

Of note, from that low weekly Bandwidth level in late June 1998, the yield collapsed as much as 136 basis points from 5.46% to 4.10% by mid-October of that year.

From that low monthly Bandwidth level in September 2007, the yield collapsed as much as 255 basis points from 4.59% to 2.04% by December 2008.

Given the yield's recent push higher, it's now above both its 20-week moving average, which is now just below 4.14%, and its 20-month moving average, which is now just above 4.21%. Weekly Bandwidth is also now on track to rise for a fourth straight week, adding to an upward bias.

The next resistance is at 4.313% followed by 4.353%. Moving forward, the focus is on the upper monthly Bollinger Band, which is now around 4.57%, and the resistance line from the October 2023 high, which is now around 4.63% on a weekly basis.

The yield will need to reverse below 4.21%-4.20% to begin to take pressure off the upside. A move back below 4.13%-4.10% can refocus on downside trigger levels which are now in the 3.97%-3.85% area, including the lower weekly and monthly Bollinger Bands.

(Terence Gabriel)

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