The 10 year treasury note (TNX) will reverse its trend soon.
The 10 year treasury note (TNX) is following previous tightening cycles very closely.
Since the COVID crash, TNX has been in a clear uptrend, but eventually it will hit a breaking point. The Federal Reserve is signaling they can raise interest rates as high as needed to calm inflation; however, there is a descending resistance line going back decades. This resistance line suggests that a 2.5% TNX is the absolute maximum the rate can go before the Fed takes action.
In my opinion, TNX will follow the dotted line. First, descending over the next few months as the Fed begins tightening in a regular and consistent fashion. The market will begin to recover from the correction it is currently in. Second, later in the year, more negative data will come out about inflation, supply chain degradation, etc. which will severely hurt earnings and the broader markets until something breaks in late 2022 or early 2023. Third, the Fed will stop raising rates and eventually begin lowering them until the TNX is in negative territory.
Many investors are trying to find the 1 thing that will cause markets to tank, but I think this time around the real culprit will just be institutional rot. Everywhere investors look there is very little real growth. Stocks are increasing due to share buybacks, earnings are increasing due to inflation rather than sustainable reasons, and at least for now, the Fed is still propping up many markets. It could very well be that in late 2022 a large economic event does occur that is disastrous for markets like COVID, but I would bet money that it is just a repeat of the 2018-19 tightening cycle where officials attempted to take off the training wheels only to find the market was incapable of adapting and needed to reverse course.
Chart notes: The RSI divergence and triangle show that the TNX will break sometime in this year, just can't tell which direction yet. Considering that banks are decreasing GDP forecasts across the board and Goldman just gave the USA a 35% chance of recession in the next year I would put a lot of money on it breaking down as the opposite would be the breaking of a decades long channel.
Since the COVID crash, TNX has been in a clear uptrend, but eventually it will hit a breaking point. The Federal Reserve is signaling they can raise interest rates as high as needed to calm inflation; however, there is a descending resistance line going back decades. This resistance line suggests that a 2.5% TNX is the absolute maximum the rate can go before the Fed takes action.
In my opinion, TNX will follow the dotted line. First, descending over the next few months as the Fed begins tightening in a regular and consistent fashion. The market will begin to recover from the correction it is currently in. Second, later in the year, more negative data will come out about inflation, supply chain degradation, etc. which will severely hurt earnings and the broader markets until something breaks in late 2022 or early 2023. Third, the Fed will stop raising rates and eventually begin lowering them until the TNX is in negative territory.
Many investors are trying to find the 1 thing that will cause markets to tank, but I think this time around the real culprit will just be institutional rot. Everywhere investors look there is very little real growth. Stocks are increasing due to share buybacks, earnings are increasing due to inflation rather than sustainable reasons, and at least for now, the Fed is still propping up many markets. It could very well be that in late 2022 a large economic event does occur that is disastrous for markets like COVID, but I would bet money that it is just a repeat of the 2018-19 tightening cycle where officials attempted to take off the training wheels only to find the market was incapable of adapting and needed to reverse course.
Chart notes: The RSI divergence and triangle show that the TNX will break sometime in this year, just can't tell which direction yet. Considering that banks are decreasing GDP forecasts across the board and Goldman just gave the USA a 35% chance of recession in the next year I would put a lot of money on it breaking down as the opposite would be the breaking of a decades long channel.