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Wave May Lift U.S. 10-Year Yields, BofA Says: Technical Analysis

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Nov. 8 (Bloomberg) -- Treasury 10-year notes, which have almost doubled the returns of the broader U.S. government debt market this year, are poised to reverse the rally going into 2012, Bank of America Corp. said, citing technical analysis.

The decline may push the yield on the 10-year note up to 2.7 percent as early as January as Elliott Wave analysis and seasonal factors favoring risky assets point to underperformance by the benchmark security, according to MacNeil Curry, chief rates and currencies technical strategist in New York at the firm’s Bank of America Merrill Lynch unit.

“Over the short term, we are bullish on Treasuries, but the larger trend is turning,” Curry, who forecast the turnaround in a client note today, said in a telephone interview. “Seasonally, the environment for risk improves headed into a new year, and with how correlated markets have been, that should weigh on Treasuries.”

Elliott Wave theory, developed by the accountant Ralph Nelson Elliott during the Great Depression, seeks to predict moves by dividing past trends into five sections, or waves. Ten-year notes have exhibited a “five-wave non-overlapping yield advance” from low yield to high, signaling a change in trend, Curry said.

Treasury 10-year notes have returned 15.3 percent this year, compared with a gain of 8.9 percent for the broad Treasury market, according to Bank of America Merrill Lynch indexes. The MSCI World Index of stocks has fallen 5.6 percent.

The yield on the 10-year note declined three basis points today, or 0.03 percentage point, to 2.01 percent in New York, according to Bloomberg Bond Trader prices. It touched a record low of 1.67 percent on Sept. 23.

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

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