Conclusion, Investment Implications, Strategy
The yield of the benchmark US 10-Year Treasury Note’s recent successful test of underlying yield support at 1.70% sets the stage for a rise to at least the 2.25% to 2.32% area, our initial upside target since early January and a likely place for the current rise in these yields to at least temporarily stall. Should these yields exceed 2.32%, however, it would set the stage for a much larger move to the 3.00% to 3.35% area.
Introduction
In our March 2nd Special Report entitled “US 10-Year Yields Target A Rise To At Least 2.25%”, we said:
“The yield of the benchmark US 10-Year Treasury Note is currently reversing lower from a mid-February test of the 2.05% area, a level that we identified months ago as an important inflection point for benchmark long term US interest rates. The current pullback in these yields is amid favorable conditions to continue on a near term, week-to-week basis. However, as long as critical yield support at 1.70% to 1.55% contains them on the downside, their December 2020 major advance will remain intact as will our initial upside target of 2.25%.”
January Yield Breakout Still Targets 2.25%
After stalling at 2.05% resistance in mid-February, Chart 1 below shows that the CBOE Treasury Yield 10 Year Note Index (TNX), which tracks the benchmark US 10-Year Note, declined to as low as 16.82 (which represents a 1.68% US 10-Year yield) on Mar 1st before streaking to a fresh high of 21.40 (2.14% yield) on Mar 14th.
Chart 1
This chart is very closely following the expected directional implications and trajectory of its Jan 5th breakout from almost two years of sideways investor indecision as highlighted in blue on the chart. As stated in our Mar 2nd report, the initial upside target of this breakout from indecision is 22.50 (2.25% yield), which will remain valid as long as the upper boundary of the indecision area at 16.40 (1.64%) continues to hold as underlying support.
Yields Testing 22-Year Secular Trendline
Chart 2 below plots TNX weekly since 2007 along with its 52-week moving average, another major trend proxy with similar significance to the 200-day moving average on the daily chart. The chart also highlights TNX’s 2000 major downtrend line, which represents the secular downtrend in benchmark long term US interest rates.
Chart 2
That trend line is currently situated at 23.20. We are grouping our 22.50 initial upside target per Chart 1 with this 22- year trendline to expand our next upside target for US 10-Year yields to the 2.25% to 2.32% area.
The Big, Big Picture
Chart 3 below plots the yield of the US 10-Year Treasury Note monthly since 1900. Although yields may currently seem high to the casual investor, this chart shows that these yields are not too much higher than their November 1945 benchmark lows (right at the end of WWII), and are less than half of their 4.53% monthly average during this period.
Chart 3
The chart also shows that the next formidable overhead resistance is at 3.00% to 3.35%, which represents the May 2003 benchmark low and November 2018 benchmark high. Also note that the 32.48 (3.25%) October 2018 high, as shown in Chart 2 above, is right between those two levels which confirm their importance. Should 2.32% yield resistance be broken, it would clear the way for a rise to the 3.00% to 3.35% area.