Saturday, November 7, 2015

UST2Y 2-Year Treasury Yield Weekly Chart at 2010 Levels

The 2-year yield catapults higher to 0.90% a level not seen since 2010. The 2-year yield jumps strongly last week from 0.77% to 0.90% a 13 basis point gain. Notes and bonds sell off across all durations (yields rise) after the Monthly Jobs Report showed a robust 271K jobs and a rise in average hourly wages by +0.4%. The data leaves the door open for the Federal Reserve to announce the first rate hike in a decade on 12/16/15. Fed Funds futures indicated that about 56% of market participants expected a December hike but after the jobs report this has shot higher to over 70% now expecting a rate hike before the end of the year.

Keystone forecasted the bottom in yields in 2011 due to the positive divergence (green lines) which occurred. The expectation was for a continued sideways move for a couple more years but traders were throwing bonds overboard last week as a potential rate hike nears (lower note and bond prices send yields higher). The red lines show neggie d wanting to see yield flatten and then roll back over to the downside, however, near-term, the indicators are receiving juice especially the RSI. Thus, yields will likely move sideways with buoyancy into the major 12/16/15 meeting. The green ascending triangle pattern hints at 1.05% on the come. Keystone's 80/20 indicator says 8's lead to 2's so once the 0.80% level is breached, 1.20% is on the table. The 0.88% should lead to 0.92%.

The expectation remains for sideways yields for the months and year or two, maybe more, ahead; the sideways channels, however, are more elevated. The 2-year may move through 0.50%-1.20% for the next couple years. The chart above will be dramatically affected on 12/3/15 when ECB President Draghi announces more QE, on 12/4/15 the next Monthly Jobs Report and most of all on 12/16/15 when Yellen announces a rate hike, or not. Yield will move violently 10 or 15 basis points on 12/16/15 one way or the other. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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