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BENCHMARK TREASURY YIELD BREAKOUT FAILS, RANGE REASSERTS

Treasury yields declined on Tuesday as investors grew more optimistic that talks to reopen the Strait of Hormuz could make progress. That helped ease inflation concerns at the start of a holiday-shortened week packed with key U.S. data.

The U.S. 10-year Treasury yield US10YT=RR ended Tuesday at 4.491%, down about 8 basis points on the day. By Wednesday, it’s hovering closer to 4.47%.

What’s particularly interesting is the bigger technical picture. Not long ago, it looked like the 10-year was breaking out of a multi-year range. On May 15, the yield pushed above the top of a large symmetrical triangle pattern that’s been forming since 2023 -- a move that hinted at a potential pickup in volatility and momentum.

The yield even climbed as high as 4.687% on May 19. But the breakout didn’t hold. Since then, it’s reversed sharply, falling below a key monthly resistance line around 4.58% and back under the upper monthly Bollinger Band, near 4.58%, suggesting volatility is staying contained for now.

In fact, volatility has become so compressed that the monthly Bollinger bandwidth is still on track to hit its lowest level since May 1989. That kind of low-volatility environment doesn’t point to a specific direction, but history suggests it rarely lasts. In other words, the market still looks like a coiled spring, and traders are staying alert.

With the failed breakout, the yield is back within its familiar range and is now testing support between 4.48% and 4.44%.

If the yield thrusts back above 4.58%, that would bring prior highs into view -- around 4.81% from January 2025, and even the 5% area. That zone aligns with the upper yearly Bollinger Band and the October 2023 peak at 5.021%. Further out, the June 2007 high near 5.33% remains a longer-term reference.

On the downside, a more meaningful shift would require the yield to break below the 20-month moving average, now just above 4.25%. That would suggest a trend turn and reopen the door to the lower end of the range, around 4.00% to 3.92%.

If that happens, the yield could revisit levels like the September 2024 low at 3.599% or even the April 2023 trough near 3.253%.

(Terence Gabriel)

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