U.S Yields Rise on Technical Resistance, Improving Risk Sentiment

U.S. Treasury yields rose on Wednesday as 10-year notes reached key technical resistance after a rally on Tuesday sent yields to five-month lows, and as rising stocks indicated improving risk sentiment.

Benchmark 10-year Treasury note yields rose back above the 2.20 percent level, where there is technical resistance.

“We’re consolidating and looking for the next big trade, whether it is a reversal of the rally or an extension of it,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York.

Lyngen noted that the 2.20 percent to 2.25 percent yield levels on the 10-year note are significant from a technical perspective because “there is a bit of a volume bulge there.”

The 10-year notes were last down 6/32 in price to yield 2.20 percent. The 10-year yield fell as low as 2.165 percent on Tuesday and has tumbled from a recent high of 2.63 percent hit on March 14.

U.S. stocks also rose on Wednesday, reducing the safe-haven bid for bonds. With no major economic releases due this week investors were focused on the French elections, U.S. tensions with North Korea
and any new indications on when the Trump administration is likely to undertake tax and fiscal reforms.

Centrist Emmanuel Macron held on to his lead as favourite to win France’s presidential election, a closely watched poll showed, although it indicated that the first round of voting at the weekend remained too close to call.

U.S. Vice President Mike Pence said that Washington would work with its allies and China to put economic and diplomatic pressure on North Korea but added that the United States would defeat any attack with an “overwhelming response.”

Bonds prices have been boosted in recent weeks by reduced expectations that the Federal Reserve will raise interest rates two more times this year following disappointing economic data releases. The administration of U.S. President Donald Trump is also seen as less likely to pass fiscal or tax reforms in the near term.

Futures traders were pricing in a 49 percent chance the U.S. central bank will raise rates at its June meeting, down from 71 percent on April 6, according to the CME Group’s FedWatch Tool.

Boston Fed President Eric Rosengren was due to speak later on Wednesday. The U.S. central bank will also release its Beige Book compendium of economic conditions.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell