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Charts show bond yields could go higher

Traders in the 10-year bond options pit at the Chicago Board of Trade signal orders.
Frank Polich | Reuters
Traders in the 10-year bond options pit at the Chicago Board of Trade signal orders.

Treasury yields, at the longer end of the curve, look set for a potential technical move higher.

Yields on both the 10-year note and 30-year bond on Monday moved to levels that could suggest at least an incremental move up, strategists say. The 10-year was at 2.135 percent in late trading, the highest position in nearly two months.

The moves come after last week's march higher in yields that surprised many traders, since the market ignored some negative factors, like very weak first-quarter GDP. It instead focused on a jump in European bond yields and a move higher in employment costs.

"We are certainly breaking what we would call technical support," said David Ader, chief Treasury strategist at CRT Capital. "We broke a trend line and channel top in 10s. We are over the Fibonacci retracement. We did that actually today."

"I've got a trend line going all the way back to September of last year, and I have a channel that's in place since March that we moved over today," he said. "My next target would be the 200-day moving average which would come in at roughly 2.175 percent."

The trend line was at 2.11 percent, a level of volume from earlier this year that represented initially support and then resistance.

Ader said the 30-year was just over its 200-day moving average and is now now matching the high yield of March and December at 2.87.

"It looks weak but it's a creep," he said. If the 30-year breaks above the 200 day, he said it could be on track for 3 or 3.02 percent.

"It doesn't look good but I'm looking at momentum. I'm looking at the intensity of overbought/oversold. It really looks oversold, and so we're at some very important levels," Ader said. He said the selloff appears to be overdone.

Arthur Bass, managing director at COEX Partners, said 10-year June futures also touched near the 62 percent retracement Monday, and are at a testing point.

"TYM also broke below the uptrend line, and retraced over 50 percent of the move from the March lows, as the curve steepened in the decline. 127-17 is a 62 percent retracement, and 126-29 a 76.4 percent retracement of the move. 128-16+ will now be the first resistance. RSI is 36.6," he wrote in a note.

"The curve has been steepening, and I think the curve is going to continue steepening unless we really get the Fed moving," he said.

Nomura's George Goncalves said the moves higher in yield began with Japanese rates but now all four G-4 countries' yields are signaling a more bearish move higher.

"The market had been growing complacent at these low levels of rates so the damage done to bunds in the past few sessions suggest global rates are now susceptible to selling pressure as well," wrote Goncalves, the firm's head of rate strategy.

Goncalves said he officially turned neutral on duration, and after the move higher in yields "markets will now be cautious at chasing rallies in global rates. However we would warn to not enter into new shorts here either."