The 10-year T-note nears low of 2.5%

In early December of last year (2013) I updated a cyclical yield analysis first used in 2011. In that update, we were able to predict a likely low yield parameter for U.S. 10-year Treasuries until the end of Q1-2014 at 2.502%. The value of this prediction was especially keen this year at two "actionable" yield retreats in early February and early March to 2.57% and 2.6% respectively. These were followed with reminder notes Feb 5., "US Bond Reverse...Tease?" and March 3, "Treasuries Not as Haven as Could Be".

There remains 21 days untill the end of Q1-2014 and given the slightly stronger ISM and employment reports last week; it appears increasingly likely that the 2.502% yield for U.S. 10-year Treasuries will hold. In fact, there is increasing reason to expect that 2.5% will mark the low yield for a very long time baring desperate geopolitical fall-out.

In the prior two years we used this analysis, there were at a minimum, three actionable points where traders could position against the break of the cyclical yield low. In 2012, there were two points very close to the cyclical yield lows before rates jumped higher throughout most of the remaining period. In 2011, a late January test was made before yields jumped into period end.

Last year, the October 23, 2.502 cyclical yield low could not be confirmed until early December and the tests of that yield low did not come until later in the cycle.

About the Author

Martin McGuire, managing director at TJM Institutional Services

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