Diary of a Financier

Benchmark Treasury Yields on Collision Course with Resistance

In Capital Markets on Tue 8 Feb 2011 at 09:06
  • Benchmark 10-year Treasury yield heading straight for critical 4.00% resistance.
  • Due to ARM resets, government must keep rates low through 2012.

I had a late call last night with two analysts from two different firms on the Street.  Each is crying “uncle” after the breakout in benchmark 10-year Treasury yields (.TNX), which catapulted with renewed ambition starting February 1.  Both analysts echoed–separately–that they were banking on 3.50% as a formidable barrier to stop the yield climb.  In the end, we all agreed that 4.00 is an even more critical resistance… one I’ve had my eye on for a while:

TNX daily- in an uptrend with 1st resitce @ 3.885, then the huge resistce at 4.00 even.

An outbreak above there, and Ben Bernanke has a basket case on his hands, with 10-year rates shooting up to 525bps:

TNX weekly- secular downtrend now met with a higher bottom, an unconfirmed reversal, and resistce at 4.00.

One analyst I spoke with last night was a technician who relies more on trendlines/support/resistance than oscillators and overlays.  The other stuck to his fundamentals.  So, as I marry the two schools myself, it was interesting to hear them both bewildered by their analyses at the same time.  (If you know analysts, they always have conviction, and they always hedge their conviction, ‘you’ll certainly see x, but I wouldn’t be surprised if y.’)

I’m still trying to refinance my mortgage after I got hosed by a local bank (long story).  Am I worried about rates running away?  No.  Because of the ARM first resets from those 2006-07 vintages, which were of the shottiest quality, and which cannot sustain substantial increases to their monthly payments.  That 4-5% zone is critical for the 10-year, because that’s where it traded throughout 2004-07 during the bulk of mortgage issuance.  I trust that range won’t be breached before 2012.

–Romeo

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