TNX 10-Year Treasury Note Yield Weekly Chart

There is lots of chatter the last couple days concerning US Treasury yields and proclamations that inflation is coming fast. Yesterday early morning US East Coast time, Bloomberg reported that China views Treasuries as a less attractive investment. Boom. The dollar dropped, the euro popped. US yields jumped higher (lower prices higher yields). US stock index futures dropped the S&P's lost about 7 handles.

That lit the fuse for the inflationists to proclaim that rising prices and yields are beginning and unstoppable. Bond-king Bill Gross stood on a soap box, with his index finger pointing skyward, and declared the official beginning of a bond bear market. Market participants chuckle since Gross has made the same proclamation before. Gross's line in the sand is 2.50% so once this was taken out it is game-on for higher yields.

Not to be out-done, bond-king Jeff Gundlach grabs a microphone and says a bond bear market will begin but only if the 10-year yield crosses above 2.63%. If you look at the chart above, you can see the double-top in yields at the 2.63% level one year ago. That is where Gundlach is getting his resistance number.

Keystone called that top in yields one year ago with the neggie d. Everyone was guaranteeing higher yields and the discussions only centered around whether the 10-year would go to 3% or 4%. That was the top in yields in February-March 2016.

Yields filled that big gap from November 2016 and basically travel sideways over the last year through 2.10%-2.60%. A tighter channel is 2.22%-2.50%. Thus, price is threatening to break out higher printing at 2.60% at the highs.

But alas, Reuters says this morning that China refutes the Bloomberg story about cutting back on US Treasury purchases. Bingo. The US dollar moves higher overnight. Yields retreat off the highs. The 10-year yield drops to 2.54% as this is typed. There is always some truth to any news report. Yesterday was a shot across the bow at the US and likely begins a US-China trade and currency war.

The red lines show the negative divergence spankdown a year ago. the green lines show positive divergence last summer that sent yields higher although not all indicators were on board with the up in yields and the RSI and MACD would actually prefer yields to come back down.

In this nearer-term, yields make higher highs and the RSI and MACD are long and strong in the VST. Stochastics are overbot. Note that the yield is teasing the highs from one year ago but the indicators such as RSI and MACD are nowhere close to the levels back then. The chart hints that the 2.63% will likely be taken out in the couple weeks ahead as the momo provides follow-thru but that move up in yields would not be expected to continue. It is more likely that yields will stumble along sideways all year long.

The ADX shows that the up in yields over the last 6 months is not a strong trend. It is trying to become a strong trend if it moves up into the pink box. Note that the move down in yields in 2016 was a strong trend but it petered out in late 2016. Then the up in yields in late 2016 and into 2017 was a strong trend higher but that petered out in early 2017. Yields have been trendless bouncing along sideways since March.

The 2.60% a day ago pierced the upper standard deviation band so the middle band at 2.35% is on the table. Although yields may spend lots of time staggering sideways, one pattern the bond bears can cling on to is the potential bull flag shown by the light green lines. Let's see, if the first-leg of the two-leg bull flag is from 1.4% to 2.6%, that is a 1.2 percentage-point move. Then yield consolidates sideways with a slight downward bias so the action in 2017 is textbook. Then the second-leg has potentially begun from 2.0%. Thus, to throw some red meat to bond bears, the bull flag pattern would target 3.2%. Currently, the expectation for this year would be more of a sideways move in yields. 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.