2 and 10 Yields and Correlations

Monthly averages 1 to 10 years for the 10 year yield severely compressed at current 2.24 to 2.74 and at a maximum range of 50 points. Averages and ranges should spread easily 2 and 3 times from current compression particularly when the 2 year maximum range is 80 points.

From June 2 to 13, the 10 year ranged 13 points from 2.05 to 2.18.

10 year Correlation to DXY is practically lost at 35% and 10% to GDP yet positive at 83% to Fed Funds and positive 80% to the 2 year. Lost correlations to DXY and GDP explains why averages and ranges consolidated as those correlations should trade easily at 80% and above.

Break points to travel higher are located at 2.24, 2.27 and 2.29 to target easily 2.34 and 2.38. Current 10 year from the 1 year average at 2.74 is severely oversold. A far higher yield must break 2.34 and 2.382 to challenge 2.44 and 2.55.

Perfect long points are located at 1.79, 1.82 and 1.87 to target 2.29 and 2.32. A Fed interest rate cut may easily challenge those lower levels further.

The 2 year averages range from 0.91 to 2.52 and a maximum span of 80 points. The 2 year exceeds the range of the 10 year by 30 points. If a trade is warranted then the 2 year is a better trade. The 2 year is overbought from 0.91 and deeply oversold from 2.52.

From June 2 to 13, the 2 year ranged 16 points from 1.77 to 1.93.

Correlation to the 2 year stands on more solid ground than the 10 year as DXY correlates at 80%, S8P’s at 96%, Fed Funds at 99% and 80% to the 10 year. As in GDP correlations to the 10 year, the 2 year is negative 29% to GDP.

Vital supports for the 2 year are located at 1.437 and 1.347. Below 1.347 targets 1.18 and above 1.437 targets 1.80, 2.19 and 2.52. Perfect long point is located at 1.67 – 1.75 to target 2.19. if the Fed cuts then the 2 year travels lower to challenge 1.437 and 1.347.

Brian Twomey