Bullish US Long Yields

by Ashraf Laidi
Nov 3, 2009 16:43

Bullish US Long Yields - Us 10 Yr Nov 3 (Chart 1)

Yields on the US Treasury note show a major bullish formation, based on technicals and fundamental drivers, suggesting 4.0% could emerge before year-end. The 10-year treasury contract is the world's most liquid financial instrument; reflecting traders pricing of future inflation as well as the US govt's borrowing ability. In our July 6th piece, we predicted a bottom in 10 year yields to occur at 3.15-20% in Q4 from they stood at 3.50% at the time http://bit.ly/1msKVv . Yields eventually bottomed at 3.10% in early October before rebounding towards 3.60%. Rather than basing our fundamental argument for further yield rise solely on inflation fears, the deterioration of US govt borrowing should continue to boost long yields. The eventual signalling of an exit strategy by the Fed should further drive the reverse Head-&-Shoulder formation back into interim resistance of 3.75% (neckline), followed by 4.20%.

 

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