Technical Analyst, Saxo Bank
Summary: US Treasury and Germany Government yields are on the rise on both the short and the long end.
In this article 2, 5 and 10-year US Treasury yields and Germany Government 2 and 10-year yields
US 2-year Treasury yields have spiked above November peak topping out just below 5% before collapsing in what is likely to be just a correction down to around the 0.382 retracement at 4.58.
The positive RSI sentiment with no divergence indicates higher yields are likely. A move to the 1.618 projection of the recent correction at 5.30 - close to 2006 peak at 5.28 - is in the cards. However, a spike up to 5.60 (2.00 projection of the recent correction) - 5.85 (2.00 projection of the 2018 peak to 2020 trough) should not be ruled out.
However, if US 2-year Treasury yields move above 5.30 there is no strong resistance until around 6.6-7% i.e., the peak level in 2000.
To reverse this bullish yields picture a move below 4% is needed.
US 5-year Treasury yields have broken above resistance at 4.03 testing 0.782 retracement at around 4.26. Divergence on RSI indicates we are likely to see a correction possibly testing the 4% before it is likely to resume the uptrend. An uptrend that is likely to push US 5-year yields to test the October peak around 4.50%.
Medium-term. With no divergence on RSI 5-year yields are set for a move to around 5.20% which is the 1.618 projection of the Q4 2022 correction and peak back in 2006-2007.
If US 5-year Treasury yields break above 5.50 there is no strong resistance until around 6.70-6.80.
For US 5-year Treasury yields to reverse the uptrend a move below 3.38 is needed.
US 10-year Treasury yields are hovering around 3.90% resistance/support level and the 0.618 retracement trying to get further upside traction. The 10-year yields are in an uptrend that is likely to pick up after a minor correction, but very short-term the 4% level seems to be a strong resistance.
RSI is showing positive sentiment with no divergence indicating short-term higher yields are likely.
If the 10-year Treasury yields can break above 4% the road is paved for a move to test October peak at around 4.32.
Germany 2-year yields are forming a rising channel touching the upper trendline. RSI is positive but with divergence indicating we could see a correction. However, the trend is up and is intact unless yields drop back below 2.40
Medium-term Germany 2-year yields seem to be reaching for the 2008 peak around 4.71. However, RSI is massively overbought at 86 and the 2-year yields could face a correction possibly after touching the 0.786 retracement at around 3.51.
But the trend is up and there is no RSI divergence indicating higher levels are likely.
Germany 10-year yields have broken above 2.58 and seems set for a move to the 1.3825 projection at 2.81. However, with the positive RSI and no divergence further upside should be expected and a short-term push to 2.95-.3.05 seems likely.
Medium-term Germany 10-year yields have no resistance until around 3.40. The longer term falling trendline going back to the 1990’s has been broken and a move to around 3.40 seems likely. Expect some volatility around the 3.40 level however, which is just below the 0.786 retracement of the down trend following the Sub-Prime crisis in 2008.
However, the peak of the yields around the Sub-Prime crisis were at around 4.65. Consider this level as the strongest resistance. A break above 3.50 could pave the way to 4.65.
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As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
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