In a much-expected moment, the 10-year Treasury note yield
touched the 3% level early Tuesday, which has been closely watched by both bond and stock investors alike.
With that psychological hurdle out of the way, traders and analysts offered up a few of the next bearish milestones the benchmark maturity may pass if it keeps its holds near its recent milestone level. Bond prices fall when yields rise.
Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets highlighted a peak of 3.047% as the imminent support level to monitor. That would see the yield clear the highs seen in January 2014, pushing it to the loftiest levels since 2011.
Beyond that point, Tom di Galoma, managing director of Treasurys trading Seaport Global Securities, said a 76.4% Fibonacci retracement level stood at 3.35% for the 10-year Treasury note, a zone that signals a potential reversal is nigh.
The Fibonacci levels are based on the mathematical ratio of 0.618, also known as the “Golden Ratio.” Fibonacci followers believe if a charted instrument retraces more than 61.8% of a move, which would come in at 2.98% for the 10-year yield, it becomes a new move, with a minimum target of a full retracement of the previous move.
The recent selloff has already driven the 10-year yield past several charting levels, reflecting the bearish sentiment surrounding the bond market even after the benchmark yield fell as low as 2.71% two weeks ago. It surged above its 50-day moving average, 100-day moving average and 200-day moving average last week. Moving averages are regarded by market technicians as measures of an assets bullish and bearish momentum.
For equity investors, the pertinent level is much higher than 3%. Strategists at Société Générale said the S&P 500 could fall below 2,000, around a 44% drop, if the 10-year yield hit 3.5%.
Fortunately, they added a significant bid for safe assets should keep the 10-year yield from maintaining a foothold above 3%, as investors fleeing a selloff in risky assets like stocks would take shelter in government paper, pushing yields lower. Bond yields fall as prices rise.
Speculators’ net bearish bets on the benchmark government bond rose to 371,689 contracts on April 17, according to the latest CFTC’s Commitment of Traders report. That implies that market participants are betting for further selling in bonds, which should push prices lower and add to the climb in yields.
Foreign central banks have also reportedly sold more than $38 billion of Treasurys in the week ending April. 18, the biggest divestiture since 2013, according to Nomura Securities. That represents another factor that could lift yields, as major participants unload holdings.
See: Foreign investors cut appetite for Treasurys as U.S. set to flog record level of debt
Read: Here’s why investors are eager for clues about foreign demand for U.S. Treasurys