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‘Thicket’ of Resistance Faces 10-Year Notes: Technical Analysis

April 19 (Bloomberg) -- Treasury 10-year notes will run into a ‘thicket’ of resistance should traders try to push yields below 3.74 percent, according to strategists at Royal Bank of Scotland Group Plc.

Resistance at 3.745 percent comes from a bearish trend in yields that began Nov. 27, when the security closed at 3.21 percent, strategist William O’Donnell at RBS Securities Inc. in Stamford, Connecticut, wrote today in a note to clients today. Resistance refers to areas on a chart where orders to buy or sell a security may be clustered. RBS is one of 18 primary dealers that trade with the Federal Reserve.

The next level of resistance is at 3.72 percent, which stems from a bullish trend that began on Dec. 31, when the security yielded 3.84 percent, and was also the top-end of the yield range then, O’Donnell said. Other points of resistance occur through the 3.56 percent level, the lowest close this year, he said.

“I see this whole thicket of resistance from current levels all the way down to 3.56 percent,” O’Donnell said in a telephone interview. “We have a very light week for economic data and no new supply. That allows the technicians to dominate the landscape rather than numbers of auctions.”

The market’s response to reaching support levels at 4 percent on the 10-year note yield shows the importance of technical data, particularly during auction periods, O’Donnell said.

18-Month High

“We rallied the better part of 25 basis points in two weeks since we tested the 4 percent technical level, bounced off of it, and started this run to lower yields,” O’Donnell said. “The test at 4 percent is a sign that the market is clearly paying attention to technicals.”

The 10-year note reached an 18-month high of 4.01 percent on April 5, two days before the government sold $21 billion of the securities. The notes drew $3.72 in bids for each dollar of debt sold, the most for the securities since at least 1994, when the Treasury began releasing the data.

The amount of new cash being raised at next week’s auctions of 2-, 5- and 7-year notes will also weigh on the market, O’Donnell said. The offerings will generate an estimated $98 billion of new funding for the Treasury, “which is a big chunk of change, even in these days,” compared with $41 billion at the auctions of the same securities last month, he said.

To contact the reporter on this story: Daniel Kruger in New York at dkruger1@bloomberg.net

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

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