Something’s Brewing at the Front EndDonald Trump wants lower interest rates. He may well get his wish soon, at least at the front of the U.S. Treasury curve. The chart you’re looking at has two panes. On the left, we have U.S. two-year Treasury futures. On the right, we have two-year U.S. Treasury yields. The former uses a weekly tick, the latter daily.
With futures coiling in a well-defined ascending triangle pattern for more than a year, you get the sense that should we see a weekly close above 104’16’0, it may act as a catalyst to spark further upside, potentially explosive. The contract has been rejected at the level six separate times since July 2024, including four failed breakout attempts over the same period. This reinforces its importance. Given its proximity to the level with RSI (14) and MACD generating bullish momentum signals, attempt number seven—if we see it—stands a decent chance of sticking.
If we see a sustained break above 104’16’0, 105’08’0, 106’06’6 and 107’06’2 loom as the levels to watch, especially the latter as it aligns with the extension target based on the triangle’s height. If it were to be achieved, it points to a nominal two-year Treasury yield of around 1.5%.
That’s obviously far lower than where it currently resides, pointing to negative real rates given the Fed’s 2% inflation target and, in all likelihood, economic conditions far weaker than recent years or monetary policy being guided by factors other than fundamentals.
While the setup is tradable, if it plays out, it will have ramifications far beyond rate futures given the economic signal it would provide. When you look at recent moves in hard assets with perceived scarcity value, it appears many investors and traders are already positioning for such an environment.
Good luck,
DS
