US10Y Analysis : Possibility of higher for longer

22 thg 12, 2024

Historical Context and Key Observations :
From its peak in 1981 (~15%), the US10Y yield entered a multi-decade downtrend, consistently staying below its 20-month, 50-month, and 200-month moving averages due to disinflationary pressures and accommodative monetary policies. However, after reaching historic lows (~0.5%) in 2020 amid COVID-19-induced easing, the yield saw a sharp reversal, breaking above these key averages for the first time in over four decades, signaling a potential structural shift. Currently, the yield remains firmly above the 20M (4.19%), 50M (3.07%), and 200M (2.57%) moving averages, with their steep upward slopes highlighting the strong bullish momentum.

Technical Analysis :
The US10Y yield has shown a strong bullish reversal, breaking above the 20M, 50M, and 200M moving averages for the first time in over four decades, with the 20M forming a "golden cross" above the 50M and 200M, signaling robust momentum. The MACD is in positive territory with a rising histogram, further confirming the long-term trend reversal since 2021. Key support levels lie at the 50M (~3.07%) and 200M (~2.57%) moving averages, while resistance may emerge near the psychological 5% level, last seen consistently in 2007. Despite the parabolic rise from 2020 lows, consolidation or a pullback may occur before the uptrend resumes.

Fundamental Factors Driving Yields :
The US10Y yield has reversed its decades-long downtrend since 2020, driven by inflationary pressures from post-pandemic recovery, fiscal stimulus, and supply chain disruptions, prompting aggressive Federal Reserve rate hikes and expectations of "higher for longer" policies. Strong economic growth and resilient labor markets have reduced demand for safe-haven assets like Treasuries, while increased U.S. debt issuance and global liquidity tightening further contribute to rising yields. Currently above key moving averages (20M, 50M, and 200M), the yield signals strong bullish momentum, though near-term consolidation or pullbacks may occur before the uptrend resumes.

Conclusion :
The US10Y yield appears to be in the early stages of a structural shift from its decades-long downtrend. Key technical signals, including the break above long-term moving averages and bullish momentum in the MACD, suggest that the upward trend may continue. However, near-term consolidation is possible, especially given the sharpness of the recent rise.
Potential Scenarios:
1. Bullish Case: Sustained economic resilience, sticky inflation, or additional Fed rate hikes could push yields toward 5% or beyond.
2. Bearish Case: A dovish Fed pivot, recession risks, or flight-to-safety events could see yields retesting support at the 50M and 200M moving averages.