Doji Chart May Halt 10-Year Slump, BofA Says: Technical Analysis

The trend that has driven Treasury 10-year notes to nearly twice the return of the broader U.S. debt market since mid-March is intact, even as the securities are poised for their third weekly decline, according to Bank of America Corp., citing analysis of trading patterns.

The benchmark securities’ yield movements on a candlestick chart are forming a so-called Doji pattern, which is created when a security closes at almost the same level as it did the previous day after moving higher and lower during the trading session. The yield movements have also formed a so-called shooting star pattern, which results when a security’s price, at some point during the day, advances well above the opening price, while closing lower than the opening price. Both patterns suggest the selloff is running out of steam.

“The momentum of selloff is looking exhausted,” said MacNeil Curry, chief rates and currencies technical strategist in New York at the firm’s Bank of America Merrill Lynch unit. “It’s going to take more bearish trading to break the trend. Even with the selloff the bullish trend in the market, which has been in place since March, is still intact.”

The signals come after Treasuries failed to sustain a break of 1.67 percent on the benchmark 10-year note yield, which halted a five-day gain today as its yield dropped five basis points, or 0.05 percentage point, to 1.64 percent at 10:22 a.m. in New York, according to Bloomberg Bond Trader prices. The yield is up eight basis points this week.

The yield has increased eight basis points this week. A break below 1.596 would be further confirmation of the trend.

Ten-year U.S. debt has returned 7.6 percent since March 20, when the 10-year note yield rose to 2.4 percent, the highest since October, 2011. This is almost double the 4.1 percent gain in the broader Treasury market, according to Bank of America Merrill Lynch indexes.

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.

To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net