LIVE MARKETS-Benchmark Treasury yield: About to go over the waterfall?

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BENCHMARK TREASURY YIELD: ABOUT TO GO OVER THE WATERFALL?

U.S. Treasury yields fell on Thursday as investors rushed for safety, rattled by mounting tensions between the U.S. and Iran and, more broadly, by the potential economic fallout from the rise of artificial intelligence.

The U.S. 10-year Treasury yield US10YT=RR lost around 3 basis points to end at 4.017% on Thursday. Now on Friday, it hit a low of 3.977%, putting it below 4.00% for the first time in three months. In the wake of a hotter-than-expected January PPI report, the yield is now around 3.99%.

Meanwhile, traders, who have been bracing for a big move, are noting that weekly Bollinger Bandwidth, a historical volatility measure, is on pace to rise for a seventh straight week. Monthly Bandwidth is also on track to rise in February.

Since these Bandwidth increases are coming amid a decline in the yield, the potential is there for a waterfall slide.

The yield is also breaking below its rising 200-week moving average, which now resides just over 4.01%. The yield has not scored a weekly close below this long-term moving average since early March 2022.

The yield has support in the 3.961%-3.93% area, including the October-November 2025 lows and the support line from the April 2023 low.

Thus, the yield would appear to be at a critical juncture. Breaking this support could spark downside momentum and see the downside spill take on a life of its own.

The next levels would be at the April 2025 low at 3.86%, the upper boundary of the monthly Ichimoku Cloud, at 3.78% in March, and the September 2024 low at 3.599%. The potential will be for a deep decline to the 3.253% April 2023 trough.

The yield will need to reverse back above the 20-week and 20-month moving averages, which are now around 4.13% and 4.22%, to suggest it has stabilized. Such a turn can refocus on the upper bounds of the multi-year contracting range.

(Terence Gabriel)

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