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U.S. Yield Gap Widens on Fed, BofA Says: Technical Analysis

The extra yield Treasuries investors demand to hold 30-year bonds notes over five-year securities is poised to climb from a four-month high if the spread closes above moving averages, according to Bank of America Corp.

The difference between five- and 30-year yields, which has risen 30 basis points to 2.18 percentage points, from the yearly low of 1.88 percent in June, will increase further if the spread closes above 2.3 in the near term and finishes the month above the 21-month moving average of 2.28, said MacNeil Curry, chief rates and currencies technical strategist in New York at the firm’s Bank of America Merrill Lynch unit, said in a telephone interview.

The difference has widened amid speculation the Federal Reserve will undertake efforts to spur the economy that may send prices higher, after data last week showed employers added fewer jobs than forecast. The Standard & Poor’s GSCI Spot Index of 24 commodities is up more than 20 percent since reaching this year’s low on June 22. The Federal Open Market Committee meets on Sept. 12-13 and may consider addition bond buying, known as quantitative easing, or QE.

“The widening in the spread and commodity prices rising reflect rising inflation fears as QE3 speculation is rampant,” Curry said. “We are nearing territory that suggests these fears may be here to stay for a while, and should see more steepening.”

The yield difference between 10-year notes and similar-maturity Treasury Inflation Protected Securities, which represents traders’ outlook for the rate of inflation over the life of the securities, touched 2.40 percentage points today, the widest since March 22, before slipping to 2.38 percentage points. The average during the past decade is 2.16.

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

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