UST2Y 2-Year US Treasury Yield Weekly Chart; Tight Bands Forecast Huge Move Coming in 2-Year Yield on Weekly Basis but What Direction?

Folks, it's time to gird your loins. Are you holding on to your hat? Look at those tight bands. No, not a tight band like Counting Crows performing Daylight Fading, but instead tight standard deviation bands in the chart above (pink arrows). It is epic.

There is a humungous move about to occur in the 2-year yield on a weekly basis. Unfortunately, tight bands do not predict direction. Tight bands are like squeezing a tube of toothpaste. You know the toothpaste is about to violently explode from the tube when the cap pops off but you have no idea where it is going.

The bands came in tight at the end of last summer and that shot the 2-year yield higher from 2.89% to 4.65% a 176 bips pop in 12 weeks. You have to figure the coming huge move will be a couple hundred bips or 2 percentage points. Wow. No one, most of all the Federal Reserve and Pope Powell, is ready for this move should it occur.

The red lines show the negative divergence (neggie d) that causes the smack down and lower yields from November to present. The stochastics are oversold and positively diverged agreeable to the current buoyancy appearing in yield. The MACD line is not as inspiring.

If the yield was back up at the prior high at 4.72%, the indicators would all be neggie d and the top would be in for yield. However, yield is up to 4.53% currently still 19 bips away from a matching high (negative divergence cannot exist unless the yield, or price in the case of stocks, makes a matching or higher high as a first step of topping).

Thus, it is a quandary and why analysts are all over the map when it comes to forecasting the direction ahead for yields. The chart hints at a couple-few weeks of chop with upward buoyancy. The high at 4.72% is taunting yield to come back up for a look. The indicators hint at a week or three of potential buoyancy but if yield tags 4.72% it will likely occur with the indicators neggie d sealing the top.

On top of this drama is the tight bands that will want to resolve with yield running wildly in one direction or the other. The Federal Reserve is another wild card since Chairman Powell may cough and people are hitting the buy and sell buttons.

Barring any surprises from the Fed, yield may chop for a week or three with upward buoyancy extending the tight bands a bit more into a sideways tunnel, and then, considering the weakness in the indicators, the expectation would be for a rollover in yields and big drop lower say in March/April.

If this occurs, one could postulate, that's a ten-dollar college word, that traders and investors are buying Treasury's like mad because something bad is happening to the US stock market. Money may flood out of stocks and into notes and bonds (Treasury prices up yields down) as the tight bands resolve during the weeks forward. It will simply have to be monitored and each day will provide more clues as to what is going to happen. 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.

Note Added 10:02 AM EST: The 2-year yield is at 4.53%. The 10-year yield is at 3.70%. The 2-10 spread (yield curve) is at 83 bips new negativity. The 2-year yield is steady as the 10-year yield drifts slightly lower sending the 2-10 spread more negative.

Note Added Wednesday Morning, 2/15/23, at 5:00 AM EST: The 2-year yield pops higher after a slightly hotter inflation report to 4.59% now only 13 bips from the Fall high at 4.72%. The 10-year yield is at 3.72%. The 2-10 spread (yield curve) is at 87 bips new negativity not seen since the early 1980's when many of you were only a glimmer in your parent's eyes. 

Note Added Wednesday Morning, 2/15/23, at 7:00 AM EST: The 2-year yield pops higher to 4.62% now only 10 bips from the Fall high at 4.72%. If yield pops to 4.72% that would lock-in the top in yields on the weekly basis; there would be a couple weeks of sideways chop but yields will drop if the neggie d remains in play which it should. In real-time, the tight bands are starting to extend sideways a bit creating a little tunnel and the yield at 4.60% is teasing the upper band at 4.65%. The tight bands appear to be squeezing-out a big move higher but do not take that as gospel just yet. Sometimes a fake-out move higher occurs first, followed by the big flush lower and collapse out of the tight bands. You have to let it keep playing out the next few days. The 2-year popping above 4.65% would be important. The 10-year yield is at 3.75%. The 2-10 spread (yield curve) is at 87 bips new negativity. Note that over the last couple hours, both the 2-year and 10-year yields move higher 3 bips in unison. The 2-year took the bigger jump on the inflation data creating the greater inversion. Another hook pattern is given the hook. The recession does not appear if the 2-10 spread keeps sinking further into the blackhole negativity. The hook pattern is waiting for Godot but perhaps one day it will arrive and usher in the US recession going forward.

Note Added Sunday, 2/19/23: The 2-year is at 4.62% almost matching the prior high and the chart indicators are clearly not on board with the move higher. The standard deviation band tunnel continues with the top band at 4.65% so yield almost kissed that top band last week. The tight bands are about to squeeze-out a humongous move but you cannot say that it is up yet. Let a few more days play out because it smells like it can reverse hard and quick. The tunnel has not flared out as yet to confirm the up direction. Perhaps stocks sell off and some of that money finds its way into Treasuries creating downward pressure in yields? No matter what happens over the next few days and couple weeks, it is probably going to be something big. Ash Wednesday is 3 days away, a Holy Day for Catholics; maybe the markets will be in ashes.