At 5%, this is where chart analysts say the 10-year Treasury yield is headed next

Published Fri, Oct 20 20239:31 AM EDT

US10Y 5D mountain 10-year yield this week The benchmark 10-year Treasury yield briefly reached the 5% milestone late Thursday, raising questions of how long it will stay elevated and what the effect will be on stocks. The 10-year yield — a key determinant of mortgage rates and credit card interest rates — later fell back to around the 4.96% area Friday, still near a 16-year high after having risen some 40 basis points in October alone. (A basis point equals 1/100th of a percentage point, or 0.01%). Meanwhile, yields on the 2-year Treasury note and 30-year bond were recently 5.12% and 5.11%, respectively. The rapid climb in bond yields has come as the economy proves remarkably resilient in the face of 11 Federal Reserve interest rate hikes since early last year. Recent labor market data continues to show strong job growth, and the Atlanta Fed's GDPNow tracker suggests third quarter gross domestic product will come in at a 5.4% annual rate. At the same time, the supply of Treasury notes is enormous thanks to yawning federal deficits and robust spending. "The driver of ever-higher Treasury yields remains a simple one: the Fed simply won't be cutting rates as soon, or as deeply, as markets previously expected," RBC said in a note Thursday. Resistance at 5.25% Ten-year yields are likely to see "a little bit of an overshoot" above 5%, with the next meaningful resistance level around 5.25%, which roughly was also the peak level of 2006 and 2007, said Wolfe Research analyst Rob Ginsberg. "I still believe that this move will eventually cause something in the system to freeze up or break, which will then lead to a strong rally in bonds and a reversal in rates," he added. "I've been thinking [sometime] later this year or early Q1," said Ginsberg. Bank of America chief global fixed income, currencies and commodities technical strategist Paul Ciana was similarly unfazed by the 5% milestone, saying that secular technical trends had foreshadowed the move for some time. The technical measures Ciana watches, such as Elliott Wave theory , where he he see wave five having been reached, suggest the 10-year yield "probably finds its peak between 5.0% to 5.5%." Ciana has recently shifted from telling clients to sell any brief Treasury rallies to taking "tactically long" postitions instead. "This is the last leg of the upmove" from the 2020 low, when 10-year yields touched 0.31%, he said. "We know we're past typical targets, from a technical approach." Fairlead Strategies founder Katie Stockton also pinned 5.25% as the next resistance level for the 10-year bond yield. She noted that the 5% level is "psychologically significant" for the benchmark yield. "New counter-trend signals" from the DeMark indicators "suggest that this week's up move will yield a short-term top for Treasury yields across maturities," said Stockton. She figures the next resistance level for 10-year yields "is 5.25%, but the 5.00% level would be a natural place for a pullback within the context of the strong long-term uptrend." Meanwhile, Piper Sandler's chief market technician Craig Robinson also said the 10-year yield is due for a pullback. Running out of steam "In the technical world, when you reverse these big long-term downtrends, you always come back and re-check from where you reverse the downtrend. With that being the case, what it would suggest to me is, as I'm watching yields go up, and momentum and rate of change diverging the other way, that you're sort of running out of steam," Robinson said. Ciana, on the other hand, estimates the 10-year yield likely staying above 5% for a while. "We know that momentum for example, is diverging from the medium-term even though the numbers on the screen look parabolic. It's actually moving higher at a slower rate versus 2022's peak yield points," said Ciana. "We're almost there, to be honest," Ciana added. "I think the 10-year yield probably does get above 5% for a while, and at some point in Q4, maybe Q1, transition to that buy and hold," Ciana added.