SAMT Blog
Expect a Triangle Pattern for Months in US 10-Year Treasury Yield
04. January 2023, by Bruno Estier
Technical Analysis
The yield spread of the US 10-Year Treasury yield minus the 1-year yield on the top of the monthly chart is now well below zero. As this yield curve inversion also happened in 2006-2007, it is sparking many discussions about a looming recession. Here we like to focus on the price pattern that the US 10-Year Treasury yield may take in the coming year, based only on the price advance since mid-2021 when the yield was at 1.07%. The all-time low was at 0.398% in 2020, and the yield rose to 1.765% to pull back to 1.07%. From that level, the advance was very sharp to 4.33%, probably in 5 strong impulsive waves. This suggests that we should expect a sideways pattern for the coming months, possibly taking on the pattern of a triangle, but holding above 3.03%, which is the 38% Fibonacci retracement of 4.33% to 1.07%.
On the chart is a triangle pattern built between 4.33% and 3.40%, the current month spike low. I agree that it could be a tad too early to draw such a pattern, as the recent decline is only the first down leg of a 5-leg pattern and may not be fully completed on the downside. But we have one sign that a higher high above 4.33% is rather unlikely as the next move of the yield. Note the bearish divergence on the monthly STO between the last high at 4.33% and its preceding one near 3.5%, making it very likely that the US 10-Year Treasury yield has already entered a corrective phase with the rise from 1.07% to 4.33%. Further, we believe the rise to 4.33% is the beginning of a secular cycle of rising US rates, thus the most likely pattern now is a pause sideways holding above 3.03% and the Fibo at 38%. Of course this scenario would be invalidated by a decline below 3.03%. We believe having a view on the possible evolution of the US 10-Year Treasury yield for 18 months may become a big help in assessing the US equity markets. We will discuss that at another time.
About the author
Bruno Estier is an Independent Market Strategist and founder of Bruno Estier Strategic Technicals (bruno.estier.net). Based in Geneva, he is a global market advisor and technical analyst coach for professional traders and portfolio managers.
He is a past president of the Swiss Association of Market Technicians (SAMT) and served on the board of directors as chairman and secretary of the International Federation of Technical Analysts (IFTA). Bruno holds a MSTA from The Society of Technical Analysis (STA) in London and the CFTe and MFTA designation from IFTA.
He worked for 12 years as a technical analyst with JP Morgan in Zürich and Paris and 10 years with Lombard Odier & Cie in Geneva. He earned an MBA from The University of Chicago Graduate School of Business and a Masters in Economics from the University of Saint Gallen (HSG).
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