In our previous May 19th Research Excerpt, entitled Long Term Interest Rates At Major Decision Point, we provided an excerpt from our May 16th Keys To This Week report (access requires subscription) which pointed out that the yield of the benchmark 10-Year Treasury Note was testing a major inflection point at 3.13%.
Knowing where these key levels are, ahead of time, is the next best thing to knowing how the market is going to react to them.
From that May 16th report:
“Our primary focus this week is on the market’s reaction to major yield resistance in the 10-Year Treasury Note at 3.08% to 3.13%, which is currently being tested.The next significant move in these benchmark yields, either up to the 3.34% to 3.68% area, or back down towards 3.00%, perhaps to the 2.88% to 2.77% area, is likely to begin from this major inflection point. More intermediate term metrics favor a decline back toward 3.00% or lower.“
The pink highlights in the newly-updated chart below show that 10-Year yields actually peaked at 3.11% on May 17th before collapsing all the way back to 2.77% by May 29th, which is an atypically sharp decline of 34 basis points in just 8 business days.
The next level of underlying yield support is major support at 2.62% to 2.47%. This major support area must contain US 10-Year yields on the downside for the current major trend of rising long term US interest rates to remain valid and intact. A trend of rising interest rates is generally characteristic of a thriving, growing economy, while declining interest rates suggest an economy that is struggling.
Why is being aware of these key interest rate levels so important? Because the yield of the 10-Year Treasury Note is the benchmark for long term interest rates in the US, and is also used as the common denominator for various credit spreads that include mortgage-backed, corporates, and agencies, all which are used to set the pricing/risk for various interest rate-related products.
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