Treasuries Threaten to Break Decades-Long Bullish Trend Line

(Bloomberg) — The Treasury 10-year yield is on the verge of breaching a downward trend line that characterized the bond bull market for decades.

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Since the 1980s, the benchmark yield has pushed up against the long-term trajectory in 1990, 1994, 2000, 2007 and in late 2018, only to reverse course and head lower. The test is resuming after the recent selloff pushed 10-year yields above 2.40% on Wednesday, from 1.51% at the end of last year.

The “market selloff is testing long-term lines that have defined a bull market for decades,” Paul Ciana, a technical strategist at Bank of America Corp., wrote in a research note.

The move signals the Treasury market is “oversold and cheap,” and that may mean either “bulls buy soon” or the yield keeps rising through the trend line, Ciana said

“At this point, the 10-year is now oversold according to the Relative Strength Index (yield has risen too fast) and so a tactical rally is increasingly likely in the next few weeks,” with resistance, or yield support, seen at 2.24%, 2.13%, 2% and 1.92%.

Alternatively “a 40-year trend may have ended the same way it began, with a head and shoulders pattern,” he said.

Read More: Bond Selloff Shows Little Sign of Ending as Fed Prepares to Hike

During last decade’s interest-rate-hike cycle, “the 10-year tested its 200-day moving average for the first time since 1989” and this measure of momentum is currently at 2.65%, Ciana said. “Reaching this again would break the bull channel,” a shift that would indicate the yield could rise to 3.1% “and even 3.3%,” he said.

(Updates yield in second paragraph)

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