Judgment Day Looms - US 10Y Yield Hitting Key Resistance

With the US bond markets closed for Veterans' Day, it is time to take a breath and examine how far (and how fast) yields have moved in the last few weeks. With the entire curve bursting higher, we focus on the 10Y yield which will need to fight through critical resistance here if rates are to continue to rise.

Via Dana Lyons' Tumblr,

Last Friday, we posted a piece on the “breakout” in the 2-Year Treasury Yield. In light of the much stronger than expected jobs numbers, rates rallied on speculation that the Fed was more likely to hike rates sooner rather than later. And though the direction of longer-term rates like the 30-Year and 10-Year are predominantly market-driven as opposed to being directed by monetary policy (save for the occasional $trillion of quantitative easing purchases), those longer-term rates rose as well on Friday.

However, contrary to the 2-Year which is at multi-year highs, the longer maturities are still far from signaling any significant shift in their path to the upside. In order for that case to be made, some serious resistance levels will first need to be breached. The 10-Year Treasury Yield is currently testing one of those initial key resistance level on its chart in the 2.35%-2.40% range.




As the chart shows, the area is marked by potential resistance from, most importantly, the down trendline connecting the peaks in 2007, 2014 and this past summer. Additionally, the 500-day moving average, which has served as a fairly good line of demarcation between uptrends and downtrends the past 4 years is also in the vicinity of 2.37%.

Also evident on the chart is the absence of a clear intermediate-term trend. For all the talk of a rising rate environment, 10-year rates have sure done very little in the way of rising. At best, rates have gone sideways over the past 4 years. The result is a triangle or pennant formation containing a series of higher lows and lower highs. The break of this pattern could go a long way in determining the next intermediate-term course for rates.

Should the 10-Year break above the present resistance level, it opens up a quick path up to the summer highs around 2.50% (also home to the 61.8% Fibonacci Retracement of the 2014-2015 decline). A breakout above there would signify a higher high in the yield for the first time since the beginning of 2014. Then, perhaps, we can entertain the notion of rising rates.

But first things first... the 10-Year Treasury Yield must overcome the layer of resistance it is currently encountering.

*  *  *

More from Dana Lyons, JLFMI and My401kPro.