Hawkeyes on 10-Year Treasury yields

Treasurys aren’t usually this sexy

Treasurys aren’t usually this sexy

Treasurys are in the spotlight. Normally the domain of institutions, national banks, and other sophisticated market participants, the yield ramp on 10-year U.S. debt is now so advanced that even market participants who typically don’t give them a second glance know there’s an historic sell-off. Last week’s global stock market correction in the wake of four-year yield highs only intensified investor scrutiny. The reasons for the dive of U.S. government debt prices are also well known. Furthermore, almost any news point linked to Fed policy, fiscal spending or dollar strength gets mapped against the 10-year yield ascent of 40% since September.

Lucky 3%

There’s currently another yield element keeping investors on the edge of their seats: proximity to the ‘psychological’ round number of 3%. On Monday, the rate hit 2.885%. It had not been as elevated since January 2014. And because prices are sticky close to that top, the probability that 3% will eventually be seen is higher than at any other time since December 2013, when the last 3% print occurred. ‘Psychological’ levels have psychological impacts on the market. These include a ‘feedback loop’ effect. And the charge increases inversely to price (as price gets nearer). Since last week’s equity market rout, we all know the possible outcome of such effects.

Near-term technicals

At the time of writing on Wednesday, the 10-year yield was at 2.834%. It had cleared a 2.611%-2.676% support zone established before last week’s acceleration. The rate’s high for the day was 2.851%, near Friday’s 2.852% close, suggesting near-term resistance within a fraction of those two values.

U.S. 10-year Treasury Yield price chart – daily intervals

Source: Thomson Reuters and City Index


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