LIVE MARKETS-Benchmark Treasury yield: Traders still braced for what could be a big move

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BENCHMARK TREASURY YIELD: TRADERS STILL BRACED FOR WHAT COULD BE A BIG MOVE

Treasury yields rose on Wednesday after a report on the labor market easily topped estimates and dented expectations the Federal Reserve could have leeway for a rate cut in the near term. Investors will next turn their attention to the January Consumer Price Index (CPI) inflation report, which is due out on Friday.

The U.S. 10-year Treasury yield US10YT=RR gained nearly four basis points to end at 4.183% on Wednesday. Now on Thursday, the yield is edging down to around 4.16% after initial jobless claims came in above the estimate.

On the charts, the yield remains 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. Its subsequent tepid rise appears to be stalling.

Looking at readings on a monthly basis, the Bandwidth is now at its tightest level since September 2007. However, with just a bit more contraction, it could be its most compressed since August 1991.

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 plunged as much as 255 basis points from 4.59% to 2.04% by December 2008.

(From August 1991, the yield slid 111 basis points from 7.81% to 6.70% by December of that year.)

As it stands now, the yield has support in the 4.13%-4.07% area, which includes the lower boundary of the daily Ichimoku Cloud.

A move below 4.07% can pressure downside trigger levels which are now in the 3.98%-3.84% area, including the lower weekly and monthly Bollinger Bands, and the support line from the April 2023 low.

Initial resistance is at the 20-month moving average, which is now at about 4.21%.

On a thrust above 4.21%, the next resistance would be at 4.313%. However, in the event weekly Bandwidth were to turn sharply higher on strength, the focus would then be 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%.

(Terence Gabriel)

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