US Treasury yields are on the verge of basing and resuming their long term bear trends, warns BofAML's MacNeil Curry, as Treasury volatility (MOVE Index) appears poised for a reversal higher...
Via BofAML's MacNeil Curry,
Treasury yields poised to base
US Treasury yields are on the verge of basing and resuming their long term bear trends. While we need to see a 10yr yield close above 2.568% to confirm, we reiterate our comment: THE LONG-TERM BEAR TREND IS POISED TO EMERGE FROM HIBERNATION. While such a turn would be supportive of our bullish US $ view against the likes of € and CHF (we are long the US $ against both) , it should also help push many $/EMFX pairs higher as well. The reason being is that Treasury volatility is also poised for a significant turn to the topside. Indeed, a turn higher in US yields should be the catalyst for such a turn in vol. In such an environment, $/ZAR is particularly well placed to benefit as it has just resumed its long term bull trend.
Chart of the week: 10yr Treasury yields at the basing zone
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US 10yr Treasury yields have reached the 2.420%/2.346% basing zone. From this zone we look for a base and resumption of the long term bear trend, which should ultimately take yields to new 2014 highs. A break of the 2.568% old Feb-4 lows confirms the turn in trend. Also, keep an eye on 5yr yields. They are closest to basing, with a closing break of 1.556% confirming.
Treasury volatility is set to turn
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Not only are Treasury yields set to turn higher, but so is Treasury volatility. Indeed, a turn in yields could prove to be the catalyst for a higher in Treasury volatility. Looking at the MOVE Index, a closing break above 60bps (Ending Diagonal Triangle resistance) would confirm a turn higher, targeting 80bps and likely beyond...
[ZH: Of course - we have one question... when does the US investing public (and its propagandizing media channels) start to call the US Treasury the "widow-maker" trade? Just like being short Japanese bonds has been a loser for 2 decades...? We presume "it's different this time"...]