JPMorgan, RBC Technical Analysts Say Short U.S. 10-Year Notes

(Bloomberg) -- The relentless slide in Treasury 10-year yields may be about to end and it could be time to go short, according to technical analysts at RBC Capital Markets and JPMorgan Chase & Co.

U.S. yields will probably rise in the short term, though they are probably still in a longer-term downtrend, RBC Capital's Technical Strategist George Davis wrote in a note Thursday.

“The one common theme that stands out for 10-year yields is valuations -- with overbought readings and study divergences presenting the scope for short-term corrections to materialize,” Davis wrote. “We view such corrections as a buying opportunity in bonds based on established downtrends for yields.”

Davis's analysis largely echoes that of JPMorgan Technical Analyst Jason Hunter, who sees “the most overbought weekly momentum and sentiment conditions in years, and the developing price pattern continues to favor a short-term mean reversion to higher yields in the weeks ahead.”

The U.S. benchmark yield has fallen almost 70 basis points this year as the Federal Reserve turned more dovish and trade tensions added to concern about slowing global growth. Markets are also on edge before a planned meeting on Saturday between U.S. President Donald Trump and China's Xi Jinping at the Group-of-20 meeting at Osaka.

Read more: Goldman Sachs joins JPMorgan is cutting U.S. yield forecast

Hunter said in the note that the “overwhelming technical setup” is countered by headline risks from the G-20 and upcoming economic data, so he's holding off re-entering short positions to see if a more developed reversal pattern sets up over the next week or so.

Louis Capital Markets Technical Analyst Andy Dodd sees an engulfing candle in the U.S. 10-year yield -- a signal that the decline is near exhaustion. At the same time, the longer-term trend for yields remains lower, he said, meaning he will be on the lookout for signs that another leg of the downtrend is about to begin.

Read more: JPMorgan says U.S. 10-year yield has upside beyond 2.24%

The move higher might not be so small, according to RBC and JPMorgan.

A close above 2.06% for the 10-year yield would trigger corrective momentum toward 2.11% and 2.17%, and an increase to 2.17% and 2.29% would be an opportunity to rebuild long positions, according to RBC. JPMorgan expects “material buying interest” in the mid-to-low 2.20s if a backup develops.

The 10-year yield was little changed at 2.02% as of 8:43 a.m. in New York Friday.

--With assistance from Stephen Spratt and Rita Nazareth.

To contact the reporter on this story: Joanna Ossinger in Singapore at jossinger@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Nicholas Reynolds

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