Quarterly Outlook
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Technical Update - US Treasury and Germany Government yields on the rise. Further upside should be expected
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: US Treasury and Germany Government yields are on the rise on both the short and the long end.
In this article 2, 5 and 10-year US Treasury yields and Germany Government 2 and 10-year yields
US 2-year Treasury yields have spiked above November peak topping out just below 5% before collapsing in what is likely to be just a correction down to around the 0.382 retracement at 4.58.
The positive RSI sentiment with no divergence indicates higher yields are likely. A move to the 1.618 projection of the recent correction at 5.30 - close to 2006 peak at 5.28 - is in the cards. However, a spike up to 5.60 (2.00 projection of the recent correction) - 5.85 (2.00 projection of the 2018 peak to 2020 trough) should not be ruled out.
However, if US 2-year Treasury yields move above 5.30 there is no strong resistance until around 6.6-7% i.e., the peak level in 2000.
To reverse this bullish yields picture a move below 4% is needed.
US 5-year Treasury yields have broken above resistance at 4.03 testing 0.782 retracement at around 4.26. Divergence on RSI indicates we are likely to see a correction possibly testing the 4% before it is likely to resume the uptrend. An uptrend that is likely to push US 5-year yields to test the October peak around 4.50%.
Medium-term. With no divergence on RSI 5-year yields are set for a move to around 5.20% which is the 1.618 projection of the Q4 2022 correction and peak back in 2006-2007.
If US 5-year Treasury yields break above 5.50 there is no strong resistance until around 6.70-6.80.
For US 5-year Treasury yields to reverse the uptrend a move below 3.38 is needed.
US 10-year Treasury yields are hovering around 3.90% resistance/support level and the 0.618 retracement trying to get further upside traction. The 10-year yields are in an uptrend that is likely to pick up after a minor correction, but very short-term the 4% level seems to be a strong resistance.
RSI is showing positive sentiment with no divergence indicating short-term higher yields are likely.
If the 10-year Treasury yields can break above 4% the road is paved for a move to test October peak at around 4.32.
To reverse this bullish picture a move back below 3.32 is needed.
Germany 2-year yields are forming a rising channel touching the upper trendline. RSI is positive but with divergence indicating we could see a correction. However, the trend is up and is intact unless yields drop back below 2.40
Medium-term Germany 2-year yields seem to be reaching for the 2008 peak around 4.71. However, RSI is massively overbought at 86 and the 2-year yields could face a correction possibly after touching the 0.786 retracement at around 3.51.
But the trend is up and there is no RSI divergence indicating higher levels are likely.
Germany 10-year yields have broken above 2.58 and seems set for a move to the 1.3825 projection at 2.81. However, with the positive RSI and no divergence further upside should be expected and a short-term push to 2.95-.3.05 seems likely.
Medium-term Germany 10-year yields have no resistance until around 3.40. The longer term falling trendline going back to the 1990’s has been broken and a move to around 3.40 seems likely. Expect some volatility around the 3.40 level however, which is just below the 0.786 retracement of the down trend following the Sub-Prime crisis in 2008.
However, the peak of the yields around the Sub-Prime crisis were at around 4.65. Consider this level as the strongest resistance. A break above 3.50 could pave the way to 4.65.
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