Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Technical Update - US 10-year Treasury yields could reach 5% in 2023. 3.50% is key support
Kim Cramer Larsson
Technical Analyst, Saxo Bank
3.50 % is key for the short-and medium-term outlook on US 10-year Treasury yields. 4.75-5.00% could be reached in early 2023
Summary
3.50 % is key for the short-and medium-term outlook.
Medium- to longer term i.e., going in to 2023 I see US 10-year Treasury Yields going to 4.75-5.00%
A correction down to around 3.64 before a bounce to resume uptrend that could take yields to new highs in 4.75-5.00% in 2023
However, for the better part of the rest of 2022 we could see Yields being range bound between 3.50 and 4.25. A daily close below 3.50 a move to around 3.22 is likely.
Short-term:
Yields has formed a double top like pattern with potential down to around 3.50. However, it is not the most perfect pattern hurting the performance.
Bouncing from 0.786 Fibo retracement of the October up-leg at 3.73 the down ward move could be over. However, an exhaustive move down move to 3.64 % should not be ruled out – see medium-term outlook.
RSI has been rejected twice now at RSI 40. If RSI cannot close below 40 Bullish sentiment remains i.e., and yields are set to rebound from here. If yields get back above 4% uptrend is likely to resume for new highs.
Medium-term: Weekly chart. A correction down to 0.382 retracement at 3.64 seems likely. There is divergence on RSI (peaks on RSI are falling when prices are rising) indicating a weakening of the uptrend and a correction is unfolding.
Hard to predict the size of the correction but if US 10-year Treasury Yields close below 3.50% we could see it at 3.21 possibly 2.92. A spike below 3.50 is not unlikely but it would be a daily close that is decisive.
Longer-term/going in to 2023: Within a few points US 10-year Treasury Yields reached 1.382 Projection of the 2019-2020 downtrend before retracing.
Monthly RSI is bullish and there is no divergence indicating we should expect new highs into 2023. US 10-year Treasury Yields has no strong resistance until around 5% which is also close to the 1.618 projection of the 2019-2020 correction.
Depending on the size of the current correction i.e., where it will bottom out, it could give energy for a move to 4.75-5.00%.
For this bullish scenario to be demolished a close below 2.50 is needed.
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