US10Y treasury yield’s bullish outlook remains strong

AT THE Jackson Hole Symposium last month, Federal Reserve chair Jerome Powell said: “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level”. Recent data, including a 2.1 per cent annualised US GDP growth rate in the last quarter, coupled with resilient non-farm payrolls and personal consumption expenditures figures, have led markets to anticipate a “higher for longer” scenario in fear of reigniting inflationary pressures. Supported by the Fed’s signs of reluctance to consider cutting rates any time soon, US Treasury yields have been climbing at an impressive cadence in the second half of this year.

Since breaking out of a downtrend channel in July, the US10Y Treasury yield has continued to trade in an uptrend channel following a successful retest, signalling a trend reversal from a downtrend to an uptrend. The trend reversal occurred simultaneously with a golden cross on the chart where the quicker 50-day simple moving average (SMA) crossed above the slower 200-day SMA, confirming the bullish reversal. Another observable bullish signal is the price that has been supported along the upward sloping dynamic 20-day SMA, indicating a strong uptrend.

Additionally, the US10Y Treasury yield is also trading above the key 4 per cent level which previously acted as a high resistance in March last year and July this year. The price rebounded from this level after retesting last year’s high of 4.3 per cent last month.

Backed by tailwinds from both the macroeconomic and technical sides, the US10Y Treasury yield looks set to continue its ascent towards another retest of the 4.3 per cent level in its strong uptrend.

The writer is research analyst at Phillip Securities