US 10-year yields resume rises alongside stocks after retreating from 4-year highs

  • US 10-year bond yields reached a new 4-year high in the wake of the new trading week. 
  • They retreated from the very top but remain at elevated levels as stocks resumed their rises.
  • The next big move depends on the US inflation report due on Wednesday. 

The US 10-year Treasury yield reached a peak of 2.902%, the highest levels in 4 years as inflation expectations continue rising. It then dropped to 2.826% before rising stock markets triggered selling pressure on bonds, resulting in higher bond yields. 

The Non-Farm Payrolls report for January showed that wages rose by 0.3% over the month and 2.9% y/y. An acceleration in wages implies higher inflation down the line thus pushing long-term borrowing rates to higher levels.

In addition, the US Congress has agreed on a broad spending bill. This will add to the projected deficit. Forecasts have already been upgraded due to the tax cuts that were signed into law in late December. 

The US will release the inflation report for January on Wednesday at 13:30 in a highly anticipated event. See the preview here.  Most of the time, stocks are moving in tandem bond yields, but the moves are not always fully correlated.

US 10-year yields technical levels

After the bond yield reached the new peak, it retreated down to 2.86%. Support awaits at 2.83%, the low recorded earlier in the day. 2.79% is the next level to watch after cushioning a quick drop in yields on Friday. 

Looking lower, 2.76% was a stepping stone on the way up last week, but more significant support is only at 2.66 that was a swing low earlier last week. 

On the upside, we find the recent high of 2.902% as the immediate level of resistance. The next highs are new 4-year highs with the very round level of 3% serving as a critical resistance. The closing level on December 31st, 2013 was 3.03%, and this serves as another resistance level. Beyond 3.03%, it is back to levels last seen in 2011. 

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