The man who called the recent rate rout is expecting a bounce.
Having predicted in January that yields on the U.S. 10-year Treasury would fall to 2.1% — which they did on Monday as concerns around slowing growth persisted — Carter Worth now sees a potential rebound in store.
Looking at a one-year chart of the 10-year yield on CNBC's "Options Action," Worth pointed out on Friday that it has consistently seen bounces of around 25 basis points following pronounced declines like the one it's currently seeing.
"It's had some pretty big rebounds, ... and the sequence, if you will, would call for something along those lines here," said Worth, chief market technician at Cornerstone Macro. "We are sort of oversold — overdone, if you will — and I think you get that sort of bounce coming up here."
Positive technical signs in the iShares 20+ Year Treasury Bond ETF, the TLT, which trades inversely to the 10-year Treasury, also support the potential for a yield recovery, Worth said.
Based on its two-year chart, the TLT has done three technically positive things, the chart master noted: It has broken out above its prior highs, making a new 52-week high on Monday; it has formed a reverse head-and-shoulders pattern, usually a bullish signal; and it has nearly completed an also-positive cup-and-handle pattern.
"At this point, I would think you get a pullback," Worth said. "And so the betting here is that after some pretty good gains in the TLT, ... you've got this kind of potential."
Mike Khouw, co-founder and chief strategist at Optimize Advisors, agreed with Worth's call that yields could be nearing a bottom.
"We began the year ... with the general understanding that the longer rates were going to go higher, and now, it seems like, universally, the view is that they're going to go lower," Khouw said. "And I think when everybody is looking for rates to descend, that might actually mean that they've descended as far as they're about to."
And for those who are planning to take this counterintuitive bet, Worth says the time is now.
"Ultimately, what we know is that in the next recession, we're going to 1%" on the 10-year Treasury yield, Worth warned. "We could go negative like the rest of Europe. The Fed could start buying stocks like the Bank of Japan. But the point is the day-to-day angle is a bit much."
The 10-year Treasury continued to sink Monday, hitting its lowest level since September 2017 amid mounting worries around global and domestic growth on Wall Street.
