As Yields Move Higher for Week, Keep Your Eye on the Leader – US 10-Year Treasury Notes

U.S. Treasury yields are moving higher on Tuesday but holding near record lows reached the previous session as a relative calm returned to crude oil and equities after both markets were routed on Monday. The early price action indicates the risk markets are recovering a little bit, which may be the result of investors coming in to by the dip in equities.

At 03:29 GMT, the benchmark U.S. 10-year yield is 0.643%, up 0.145% and the U.S. 30-year yield is at 1.097%, up 0.159%.

The German 10-year Bund is at -0.835%, up 0.09%. Japanese 10-year Government bonds are at -0.08%, up 0.053% and in the UK, the 10-year is at 0.168%, up 0.008%.

‘Not in My Lifetime’ U.S. Treasury Yields

Government paper investors were shocked on Monday when U.S. 10-year Treasury yields fell below 0.5%. Traders said a plunge in oil prices combined with worries about the spreading coronavirus combined to drive market participants into Treasuries, accelerating a years-long rally that took yields to levels not seen in anybody’s lifetime.

Traders also said the groundwork for the rally was solidified by unprecedented asset purchases by the Federal Reserve, stubbornly low inflation, changing U.S. demographics and slower growth.

Where to From Here?

Let’s face it, few analysts got the call on yields right. Additionally, forecasts have consistently overshot the eventual path of bond yields over the years.

The Fed delivered a huge surprise last week with an emergency 50-basis point rate cut. Investors are now betting the central bank will deliver at least another 75 basis points in rate cuts this month, according to the CME’s FedWatch tool.

Some investors believe that some U.S. government debt instruments may one day fall below zero, a move that would contribute to the world’s already-massive pile of negative yielding debt.

Follow the Leader – US 10-year Treasury Yields

As a Chicago guy, I was taught nearly 40-years ago that the Chicago Board of Trade Treasury traders were the smartest traders in the world and that if you want to know where stocks are going as well as the health of the economy, watch the yields.

Yields were plunging well before the stock market “caught up” to what they were saying, and they are going to be the first to signal the all clear signal.

Tuesday’s early “lower-high, lower-low” chart pattern is the first since March 3 and only the second since February 19. This chart pattern makes Monday’s high a Minor Top. It doesn’t mean the trend is changing, but it can eventually develop into one.

Looking at the short-term, stocks could continue to retrace their recent break if yields continue to rise. That’s the simplest forecast.

A more complex forecast would involve a change in trend on the 10-year Treasury Note chart. This could take 3 to 5 days to develop.

But, traders should note that as of 04:00 GMT, 10-year Treasury Note Yields are trading higher for the week.