BofA On Treasuries: 'Key Support Levels Have Broken ... STAY BEARISH'

U.S. Treasury bonds have sold off sharply in recent weeks, sending bond yields soaring upward.

In recent days, the yield on the 10-year Treasury yield reached 2.17% – its highest levels in over a year – and is now trading near 2.12%.

That puts the bonds in a bit of a “technical vacuum area” for traders charting yields, which just means it’s been a while since the last time bonds were here, and there’s not a lot of past experience to go off of in terms of recent action at these levels.

In a note to clients, BofA Merrill Lynch technical analyst MacNeil Curry suggests traders should “STAY BEARISH” following the recent sharp move upward in yields.

Curry writes:

Across the US Treasury Curve, key support levels have broken. STAY BEARISH & watch the monthly closes

Across the US Treasury curve, 2yr, 5yr, 10yr and 30yr yields have broken key support levels, pointing to further upside in the sessions and weeks ahead. While allowing for a near-term consolidation, as 2s could struggle with 31.6bps/32bps area support, 10s are threatening to post a potential Shooting Star (warning of near-term stalling) and 30s are struggling with retracement support around 3.337%, any pullback/pause should prove temporary and corrective. Indeed, we look for the sell-off to continue, with 2s targeting 41bps, 5s to test 1.182%/1.257%, 10s to probe 2.292%/2.242% and 30s to take a run at 3.461%/3.504%. HOWEVER, the risks to this view are to the topside, as the monthly candlesticks warn that Treasuries are on the cusp of long-term/cyclical turns in trend. Indeed, all points on the curve are poised to complete Bearish Outside Months (watch the Friday close – see charts for levels), while 5s, 10s, and 30s are also on the verge of completing monthly head and shoulders bases, which would point to a return to levels not seen since 2011.

The chart below shows the 10-year Treasury yield’s recent break above the upward channel it has been trending in for the past several months.

10-year UST yield

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