arigolden
Short

US10y to Stay Above 2.4% With a Year-end Target of >=2.5%

TVC:US10Y   US GOVERNMENT BONDS 10 YR YIELD
I see strong of support for the 10y at just above the key 2.40% level:

-Current 10y levels have finally crossed over the trend-line going back to July – strong near-term indicator is broken which suggests 10y support at/above 2.40%.

-Interestingly, the ~2.40% yield level is the .618 Fibonacci level which we have also crossed over – this is a key Fib level which also indicates support at 2.40% with the next resistance level at ~2.47% or the .764 Fib level.

-The ECB cannot be discounted either as any meaningful uptick in European rates will likely help push US rates even higher.

Target: US 10y at or above 2.5% by the end of the year.

Comment: US10y yield vs nominal GDP (both in quarterly terms) in terms of spread have averaged about 108bp back to 2008 (10y yield minus GDP).

It recently printed -64bp.

If we assume Trump's target GDP growth of 3% and the FED's 2% inflation target, then a 5% nominal GDP target places the 10y yield at 3%+ (approx around 3.5%).
Any Update? what do you see happening in the next months?
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arigolden lu1977hk
@lu1977hk, ...to provide some fundamental context, we hit 2.5% this week off the back of US Tax reforms looking positive for growth and inflation. This bond sell-off started in Europe as Bund yields moved higher on news that Germany will issue more debt than expected in 2018 - as I mentioned in my 3rd bullet point above in my idea, an uptick in European rates will likely see an uptick in US yields.

My update would be that since we broke above the 2.47% Fib line, this will most likely act as a support in the near-term. I still believe looking at the pace of the 5s30s flattening over the last year, in 2018 we will see a flatter curve and possible an inverted curve by 2019.
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