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Triple Top May Cap U.S. Note Yield, RBC Says: Technical Analysis

The selloff that sent Treasury 10-year note yields up the most since October after U.S. lawmakers passed a bill averting spending cuts and tax increases may face resistance, according to Royal Bank of Canada.

The benchmark yield is close to a so-called triple top, a chart pattern where a price creates three peaks close to the same level. Ten-year note yields have failed to rise above peaks of 1.86 percent and 1.89 percent during the past year.

“If we fail to break the 1.89 level, we will see support for Treasuries,” said George Davis, chief technical analyst for fixed-income in Toronto at Royal Bank of Canada’s RBC Capital Markets unit. “If we break through, the risk-sentiment trade will rule the day.”

Benchmark 10-year yields rose seven basis points, or 0.07 percentage point, to 1.83 percent in New York time, based on Bloomberg Bond Trader data. The yield gained as much as nine basis points, the steepest advance since Oct. 17, and reached the highest level since Oct. 25.

Congress passed legislation averting income-tax increases for more than 99 percent of households, breaking an impasse over how to avert the so-called fiscal cliff. Lawmakers must next tackle the U.S. debt ceiling, which reached its $16.4 trillion limit on Dec. 31.

The 10-year yield is forecast to climb to 2.2 percent at the end of the year, according to the median estimates of economists in a Bloomberg News survey.

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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