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Long-term Treasury Yields Finally Play Catch Up

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Short-term Treasury yields have been moving sharply higher since September with the 5-yr and 2-yr yields hitting multi-year highs over the last few months. Yields at the long end of the curve are lagging, but appear to be catching up finally as the 10-yr yield broke out in January and the 30-yr yield broke out this week. 

The chart below shows the 2-yr, 5-yr, 10-yr and 30-yr yields on one scale in the top window. This same-scale feature makes it easy to compare relative yields and spot the movers. The 2-yr yield (blue) moved straight up from September to early February and moved above 2% for the first time since September 2008. Yes, it looks like the bond market is finally getting back to normal. 

The lower window shows the 30-yr yield breaking out and resuming the prior advance. The yield surged from 2.1% to 3.2% from July to December 2016, and then corrected with a 50% retracement back to the 2.7% area. A rounding bottom formed over the last six months and the 30-yr yield broke out with a big move this week. 

Using the measured move technique, this breakout targets a move to the 3.8% area. The first advance measured 1.1% (2.1% to 3.2%). We can then add this amount to the correction low for a target (1.1% + 2.7% = 3.8%). This would put the 30-year yield back near the 2013 highs, but still well below the 2009-2010 highs, which were near 4.8%.

The bond market, as always, is leading the Fed and the Fed will ultimately play catch up. More importantly, we are seeing a watershed moment in the bond market as the long-term bear market in yields reverses. A rising yield environment will favor banks going forward. On the side, rising yields could be negative for utilities and REITs. 


Plan Your Trade and Trade Your Plan.

- Arthur Hill, CMT

Senior Technical Analyst, StockCharts.com

Book: Define the Trend and Trade the Trend
Twitter: Follow @ArthurHill


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Arthur Hill
About the author: , CMT, is a Senior Technical Analyst at StockCharts.com. He has written articles for numerous financial publications including Barrons and Stocks & Commodities magazine. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed technician. In addition to his CMT designation, Arthur holds an MBA from the Cass Business School at City University in London. Learn More
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