By Christopher Romano

June 9 (Reuters) - U.S. President Donald Trump has been insisting on lower interest rates despite inflation risks from his war against Iran and an AI boom. Now, chart patterns are suggesting short-term interest rates might indeed be headed down.

CHART

The two-year Treasury yield, closely tied to the Federal Reserve’s policy rate, has been climbing since the Iran war began, briefly touching a 16-month high of 4.201% on Monday. In recent weeks, investors have been increasing bets that the Fed would have to raise interest rates this year.

But the daily chart has been tracing a pattern called a rising wedge, where yields grind higher but within an increasingly tight range, bounded by two upward-sloping trendlines that are slowly converging. The pattern is generally considered a bearish warning — momentum tends to fade as the wedge narrows, and yields often break lower once it runs its course. A break below the wedge could open the door to a slide toward the 3.65–3.75% area.

Reinforcing that view, a momentum indicator called the Relative Strength Index, or RSI, has repeatedly failed to confirm new highs in yields since late March — a divergence that suggests the fuel driving the move higher is quietly running dry.

That said, the Iran conflict has injected an unusual degree of volatility into markets, making any forecast more uncertain than usual. And if yields were to climb above 4.30–4.40%, that would signal the uptrend still has legs.

For now, though, the broader downtrend in two-year yields that has been in place since October 2023 remains the dominant story — and the current wedge looks more like a temporary detour than a genuine reversal.

What the chart shows:

• Yields have been rising since the start of the Iran war, forming a rising wedge pattern — typically a bearish signal

• The move has been characterized by fading momentum since late March, with RSI diverging from new price highs

• A fall out of the rising wedge could indicate a slide to the 3.65–3.75% area is possible

(Daily markets commentary from Reuters analysts on the signals financial charts are sending - and what they might mean.)