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BENCHMARK TREASURY YIELD: STILL COILING, BUT HISTORY WARNS CALM WON’T LAST

U.S. Treasury yields moved lower on Wednesday after oil prices tumbled, following reports that the United States and Iran are nearing an agreement that could help end the conflict in the Gulf region. The drop in crude eased inflation concerns and gave bonds a lift, pushing yields modestly lower across the curve.

Markets are also turning their attention to Friday’s April payrolls report, which could be an important near‑term driver. Expectations are for a notable cooling in job growth, with economists forecasting around 62,000 non‑farm jobs added last month, down sharply from 178,000 in March. That potential slowdown has traders cautious, especially after the rate volatility seen earlier in the year.

The U.S. 10‑year Treasury yield US10YT=RR, which had been climbing in late April, lost momentum just below its late‑March peak. The yield stalled near 4.46%, shy of the 4.484% high, and has since dipped. On Thursday, the 10‑year is trading around 4.32%, down roughly 3 basis points on the day.

While the day‑to‑day moves remain relatively small, the broader technical backdrop continues to command attention on bond desks. The 10‑year yield is still confined within a large, multi‑year symmetrical triangle -- a classic consolidation pattern that often precedes a more forceful breakout.

As this range has tightened, volatility has steadily drained from the market. The monthly Bollinger bandwidth, a gauge of historical volatility, remains deeply squeezed and is now on pace to fall to around 14.3%. If realized, that would mark the lowest reading since May 1989 -- roughly a 37‑year low.

Low volatility doesn’t signal direction by itself, but history suggests these periods rarely persist. After a similar volatility trough in September 2007, the 10‑year yield dropped roughly 130 basis points in less than four months. In 1991, a comparable compression was followed by nearly a 150‑basis‑point decline over about five months. From the 1989 low, yields fell 87 basis points in just over two months.

For now, pressure is tilted modestly to the downside. Still, as long as the 10‑year holds above its 20‑month moving average near 4.25%, the longer‑term technical bias remains upward. Near‑term resistance sits around 4.48% to 4.52%, with a broader ceiling near 4.56% to 4.58%. A clear break below 4.25% would strengthen the case that downside momentum is reasserting itself, with longer‑term support closer to 4.00%.

(Terence Gabriel)

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