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Ascending Channel Suggests U.S. Yield Rise: Technical Analysis

The Federal Reserve is buying $85 billion in Treasuries and mortgage-backed securities each month to foster economic growth by keeping long-term yields low. Photographer: Andrew Harrer/Bloomberg
The Federal Reserve is buying $85 billion in Treasuries and mortgage-backed securities each month to foster economic growth by keeping long-term yields low. Photographer: Andrew Harrer/Bloomberg

March 14 (Bloomberg) -- The Treasury 10-year note’s ascending-channel pattern suggests the benchmark security will extend losses if the yield closes above 2.06 percent, according to Royal Bank of Canada technical analysis.

A daily close at the level, reached but not breached on a closing basis since April 2012, will confirm weakness, said George Davis, chief technical analyst for fixed income in Toronto at the bank’s RBC Capital Markets unit. The yield has risen 30 basis points this year in the ascending-channel pattern, a chart formation in which the yield shows higher highs and higher lows over time.

“The market continues to exhibit the bearish tone we’ve seen since December, and will continue if we breach 2.06 percent, a significant level,” Davis said in a telephone interview. “We are in for more of a gradual grind higher in yields instead of a spike, given the Fed’s continued purchases. But any rally should be seen as a selling opportunity.”

The Federal Reserve bought $3.337 billion of Treasuries today as part of its outright purchase program. The central bank is buying $85 billion in Treasuries and mortgage-backed securities each month to foster economic growth by keeping long-term yields low.

The 10-year note yield rose three basis point, or 0.03 percentage point, to 2.05 percent at 11:22 a.m. in New York, according to Bloomberg Bond Trader prices. The yield reached 2.08 percent on March 8 on an intraday level, the highest level since April 5, before closing at 2.04 percent. The price of the 2 percent security due in February 2023 slipped 8/32, or $2.50 per $1,000 face amount, to 99 17/32.

Ten-year notes have lost 1.9 percent this year, almost double the 0.96 percent decline in the broader Treasury market, according to Bank of America Merrill Lynch Indexes. The last time the 10-year started the year with larger declines was 2009, when the drop as 4.73 percent.

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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