LIVE MARKETS-Volatility compression gives way as U.S. 10-year yield breaks higher
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VOLATILITY COMPRESSION GIVES WAY AS U.S. 10-YEAR YIELD BREAKS HIGHER
U.S. Treasury yields moved higher on Wednesday as a jump in oil prices fueled concerns that escalating tensions with Iran could disrupt energy supplies, reigniting inflation pressures and potentially prompting the Federal Reserve to keep interest rates higher for longer.
On Thursday, the benchmark 10-year Treasury yield US10YT=RR hit 4.7135% which was its highest level since January 2025. It's currently around 4.71%.
From a technical perspective, the breakout from a longer-term symmetrical triangle pattern continues to gain traction.
Adding support to the move, the monthly Bollinger BandWidth indicator has started to widen after an extended period of volatility compression. Notably, it fell to its lowest level since May 1989 at the end of May. While compressed volatility does not predict direction, it often precedes significant market moves as prices emerge from prolonged consolidation phases.
In the wake of the push above the May high at 4.687%, the next upside targets are the April 2024 high of 4.739% and the January 2025 high of 4.809%. Beyond those levels, attention could shift to the October 2023 peak of 5.021%. The upper yearly Bollinger Band, currently near 5.00%, is closely aligned with that level. For broader historical context, the January 2007 high stands at 5.333%.
On the downside, initial support is seen at 4.638%, followed by 4.582%. For the breakout to show signs of faltering, yields would need to quickly retreat below the 4.54%-4.51% zone, which includes the former triangle resistance line, the rising 20-day moving average, and the July 17 low.
Even so, the broader outlook remains constructive. As long as the 10-year yield holds above its 20-month moving average, currently just below 4.30%, the bullish trend remains intact.
(Terence Gabriel)
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