Sept 14 (Reuters) - The 10-year Treasury yield vaulted to its highest in nearly three years this month as soaring oil heightened inflation fears, confirming a significant chart break earlier this summer for the U.S. interest rate benchmark and signaling a rise above 5% is possible after the market digests the recent move.
The move in the yield, which affects consumer and corporate borrowing costs, has solidified its foothold above a chart formation technical analysts call a symmetrical triangle. This pattern forms when a market's swings narrow over time and signals a bullish phase when prices — or yields in this case — surpass its upper boundaries.
This symmetrical triangle was developing for some time, and the rise targets the October 2023 high at 5.021%, located at the origin of the formation. The yield hit a high of 4.9915% on Friday, according to data supplied by LSEG, before backing away to around 4.95%.
Further on, should yields break above both the 1993 low at 5.1514% and the 2007 high at 5.333%, attention would shift to the next major hurdle: the 38.2% Fibonacci retracement of the 1981-2020 decline, near 6.24%. Fibonacci retracements are percentage-based levels that markets often revisit and can slow or accelerate movements.
One potential limiting factor, however, is the upper yearly Bollinger Band, which sits just over 5.06%, suggesting that a sustained move much beyond 5% may be difficult without a fresh catalyst. Bollinger Bands are a closely watched gauge of volatility.
Momentum indicators are also approaching a critical juncture. The 9-month Relative Strength Index (RSI) — a tool used to assess the strength remaining in a move — has risen to about 72, moving slightly above the 70 overbought threshold and raising the possibility that September could prove pivotal, either fueling a more decisive breakout or setting the stage for a reversal.
Friday's report showing U.S. consumer prices accelerated in August proved not to be a decisive catalyst. The September 15-16 Federal Reserve policy meeting may be the next possible trigger.
On the downside, initial support lies in the 4.81% area, followed by 4.73%. A deeper pullback would bring the 4.59%-4.50% zone into focus.
What the chart shows:
10-year Treasury yield at nearly 3-year high
Next upside target is 5.021%, followed by 5.1514%, 5.333%, and 6.24%
Support near 4.81%, followed by 4.73%
(Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column does not constitute investment advice or trading recommendations. )
Terence Gabriel is a Reuters market analyst. The views expressed are his own. Editing by Burton Frierson and Nia Williams
