10 V 2 Year Yields: Levels, Ranges, Targets

The 10 year yield close at 2.55 trades directly below 2.58 and its next break point at the 10 year monthly average. What’s driving the 10 year yield is the rising and now skyrocket overbought 2 year yield. What will drive the 10 year higher and align the 2 and 10 yield curve steepener correctly is a drop in massively overbought conditions in the 2 year.

The 2 year yield from the 2.002 close is not only massively overbought from simple monthly averages 1 year to 10 but seen in the 2 and 10 relationship as the 2 year far exceeded its upper range points. Consistent in the simple average Vs 2 and 10
The 2 year must trade back to its most immediate range points at 1.64, 1.31 and 1.23 to 1.25. At 1.64 and 1.48 are first achievable targets to align the distribution of averages. Lower for the 2 year must break the 1 year monthly average at 1.4242. Then the overall range from the 1 and 2 year becomes 1.4242 to 1.1229. A break of 1.1229 then the next 3 year monthly average is located at 0.975. Current 2 year yield trades above all monthly averages 1 to 10 year.

If monthly averages fail to gain speed and rise then the 2 year may easily see a challenge to the 1.4242 break longer term.
The 1, 2 and 3 year monthly averages are main drivers as all 3 averages Correlate to the 10 year at 32%, 85% and 67%. The 5 year average just turned negative while remainder averages Correlate from 11% to 28%.

The 10 year at 2.55 trades between the 10 year monthly average at 2.58 to the 9 year at 2.43 followed by the 8 year at 2.33 and 1 year at 2.32.

The 10 year is far overbought from the 1 year average and mid range to oversold against remainder monthly averages 2 to 10. From averages 1 to 4 year and V the 2 year, the 10 year should trade back to its range points to 2.49 and 2.41.

The next break points and consistent with range tops Vs the 2 year are located at 2.56, 2.67, 2.87, 3.01 and 3.11. The problem with a higher 10 year short term is extreme prices are located at 2.54, 2.61, 2.97 and 3.11. The point at 3.11 is also uppermost in range points in the 2 and 10 relationship. Above 3.11, the 10 year falls outside its range and cannot hold.

Below, a cluster of supports for the 10 year are located at 2.32, 2.21, 2.17 and 2.07. Overall, 1.74 to 1.96 in the longer term provides bottomside ranges. To understand how solid are lower 1.74 to 1.96’s in bottom range points, Fed Funds closed at 1.42 everyday in the past 18 days since the last Fed Raise. Fed Funds provides support and allows the 10 year to eventually move higher.

The 10 year shortest term needs a correction and to remain above the 9 year at 2.43 in order to break higher at the 10 year average at 2.58. Current averages are oversold from the 5 to 10 year monthly averages. Its a matter of time before 2.58 breaks and the 10 year trades to 3.0’s. What takes the 10 year higher is higher Inflation coupled with a higher stock market as bond prices will then drop, particularly over time against recession to the Fed QE program.

Last time the 10 year recorded a monthly average at 3.0 was one time in Dec 2013 then June 2012.

The 2 year yield volatility is capable to take the 2 year lower easily as the 10 V 2 year range is located at 0.25 against a 0.35 average while the 2 to 10 year range is located at 0.49 against a mean of 0.37. The current 10 to 2 spread runs at 0.54 and should eventually widen 24 basis points to 0.78 and allow the 10 year higher and rightside the overall yield curve.


Brian Twomey