Treasury Technicals: Case For "Significantly Higher" Yields On The 10 Year
One of Goldman's better technical analysts, John Noyce, has released his latest edition of the Charts that Matter. Among these, the most interesting one is that of the 10 Year, which is relevant since in about 48 hours the entire treasury curve could either flatten and tighten by 50+ bps... or widen by double that. Noyce's prediction that based on the break in the 10 Year yield channel, one could "make a case for significantly higher levels", will certainly be put to the test next week. It is Zero Hedge's conviction that the 10 Year will, unfortunately, tighten aggressively post any QE overtures, once it is made clear that the Fed will not allow rates to go up... ever... dollar be damned.
Here is the recent channel break in the 10 Year:
As Noyce says: U.S. yields have bounced, and you can make a case for significantly higher levels mainly due to 10-year yields breaking above the 55-dma after 128 consecutive daily closes below – the most in history."
- They have also broken above the resistance (price support) of the parallel channel formed off the April ‘10 highs.
- Purely based on the daily chart this seems to leave the market susceptible to significant further bounce in yields. With the next notable resistance the interim high from 12th September at 2.85% and then ultimately the 200-dma which is up at 3.2%.
- However, given the significant events coming up over the next week, we’re a little cautious of getting too carried away as the market has now bounced and so far held significant yield resistance (price support) on the intraday charts (details on the following slide).
In terms of near-term targets (which we, unfortunately, do not think are attainable as that would means normality may, just may, be returning), Noyce sees an immediate target of 2.72%-2.76%:
Three target/yield resistance levels are converged 2.72-2.76% on the intraday chart
If looking to fade the recent sell-off (rise in yields) in anticipation of a resumption of the broader downtrend once we pass next week’s events, this looks to be the region to do it against
- 2.72% - The ABC equality target from the 8th October low
- 2.74% - The resistance (price support) of a parallel channel formed off the 8th October low
- 2.76% - The target if the market bounces a similar amount from the 8th October low to that which it did from the 25th August low
- If yields don’t again turn lower from this region and break above 2.72-2.76% there would be a clear risk that the daily chart setup is correct and we’re heading back to 3+%.
The problem is that while technical analysis may be relevant in a normal market, that of a centrally planned banana republic is anything but. Nonetheless, keep an eye on these levels. Who knows, they may be relevant,