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John J. Hardy
Global Head of Trader Strategy
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Technical Update - US 2- and 10-year Treasury yields and German Govmt. 10-year signal bottom and reversal
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: Yields are on the bounce in both US and EU. Both 2 and 10-year Government yields have formed bottom and reversal patterns indicating strong rebounds.
US 10-year Treasury yields formed Friday a Hammer which is an indication of a bottom and reversal. Not the most reliable bottom and reversal candle however, with a 60/40 track record i.e., 60 % of the time it is a reversal (Source: Bulkowski – the pattern site) and as can be seen 20the March 10-year yields also formed a Hammer.
However, in this case there is a greater likelihood of this being a reversal with yields bouncing from twice from 3.28 to close above support at around 3.32.
This behaviour has formed a potential Double Bottom pattern that will be confirmed if yields closes above 3.65. Combined with the divergence on RSI the bottom and reversal scenario seems more likely than a week ago.
Very short-term a move to test strong resistance at around 3.65 seems likely. 21, 55 and 100 MA’s will add to the resistance.
A close above 3.65 gives potential to a move 3.87 – 4.0%.
If 10-year yields are to be pushed lower to close below 3.32 the Double Bottom jeopardized and if closing below it is cancelled with yields like to drop down to around 3%. That scenario is likely to play out if RSI closes below its rising trendline
US 2-year yields bounced strongly Friday from the Consolidation area to form a Hammer candle. Combined with the RSI divergence there is a rebound potential short-term to resistance at around 4.22. 21, 55 and 100 daily MA’s will add to the resistance.
If 2-year yields slides lower to below 3.50 there is support at around 3.38.
German 10-year Govm. Bond yields bounced last Monday after dipping below key support at around 1.96 forming a Hammer. Sell-off Friday didn’t manage to cancel the Bottom and reversal candle so 10-year yields could experience further rebound. A close above 2.39 will establish a new uptrend. RSI close back above 60 will confirm it.
If that scenario plays out there is short-term potential to previous peak around 2.77
For 10-year yields to confirm a downtrend a close below 1.96 is needed.
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