Bond Yields Falling – Pullback or Reversal?

Jul 9, 2008: 11:16 AM CST

Treasury Bond/Note Yields rose rapidly for the first part of June and then fell just as rapidly through the second part.  With yields testing weekly support, and failing daily support, are we due for a reversal back to the downside or a simple reassertion of the potentially newly developed uptrend?

Let’s look at the 10 Year Weekly Yield ($TNX):

Solid support comes to the yield in two forms:

The flattening 20 week EMA (at $38.96, or 3.96%)

The horozintal approximate support/resistance line just above $38.00 (or 3.80%).

Also, yields have broken out of the downtrend since mid-2007 (when the Fed began cutting rates) and is now in a confirmed, technical uptrend.  We should expect the $38.50 level to hold if it truly is an uptrend, and to break convincingly lower should we be experiencing a reversal back to the downside.

Remember that yields (in the current environment) do tend to move roughly in line with the direction of the S&P 500, so if the stock market rallies, one would expect yields to rally as well (presumably, one factor being investors are pulling money out of bonds to participate in a potential stock rally, driving bond prices down and yields higher).

The Daily chart shows a little more bearish picture, but remember that sometimes a simple and mild retracement on the higher time frames can look relatively nasty on the lower time frames.

$TNX Daily:

Price has broken key daily support levels, via the 20, 50, and 200 day moving averages, but yields attempted a gap-up today but failed (intraday so far).

Momentum appeared ready to turn up, but is back testing momentum lows formed just a few days ago.

We’ll continue to keep our attnetion focused on the Bond/T-Note market to see what implications that might have for the broader stock market.

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