U.S. Real Yield on Cusp of Breakout as Inflation Hopes Dwindle
(Bloomberg) -- U.S. 10-year real yield is on the verge of a bullish breakout resolution above the falling trendline from December; this comes as market-based measures of inflation expectations drop to lowest since November, spurring talk of Fed policy error, Bloomberg Technical Analyst Sejul Gokal writes.
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- U.S. 10Y real yield at 47bps as of 3:45 p.m. London time on Friday, could gravitate toward the 61bps resistance with momentum conditions backing such a scenario
- 200-DMA at 34bps underpins the uptrend and narrative of rising real yields
- Overshoot target at 73bps, the high in December
- U.S. 10y inflation breakeven rates are testing the crucial 100-week MA support at 1.67% (see live chart here) and a slide below here could accelerate the breakout process in real yields
- Next breakeven supports at 1.49% and 1.35%
- Investors have reduced their inflation expectations this year and seem resolute to price in policy error
- This is prominently reflected through an aggressive flattening of the yield curve and a languishing terminal rate even as the Fed maintained its forecast for interest-rate increases and inflation at its last policy meeting
- NOTE: Sejul Gokal is a FICC technical strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.
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