‘Death cross’ in 10-year Treasury yields signals that bond yields could reach new depths and prices could rise

A deadly cross in the benchmark’s 10-year government bond yields took shape Wednesday, forming a pattern in charts pointing to the possibility of new lows for government debt rates used to price everything from mortgages to auto loans.

The so-called death cross in the 10-year note TMUBMUSD10Y,
comes even if sentiment on Wall Street is that debt prices will fall and yields are poised to rise. Treasury yields move inversely to prices.

Read: 10- and 30-year Treasuries are caught in a ‘death cross’

The point at which the 50-day moving average moves below the 200-day MA is commonly referred to by technical analysts as a “death cross,” with such breaches seen as where a shorter-term pullback evolves into a longer-term downtrend. term .

In this case, the 10-year Treasury is nominally around 1.321%, but the 50-day moving average was 1.332%, according to FactSet data, while the longer-term 200-day MA stands at 1.335%.


A break of the 50-day yield trend below 200 days could also contradict the idea that yields should rise as the Dow Jones Industrial Average DJIA,
the S&P 500 index SPX,
and the Nasdaq Composite COMP,
are all at or near all-time highs.

Technical analyst Mark Newton, director at Newton Advisors, told MarketWatch that the formation of a death cross can be taken with a grain of salt.

“Moving averages illustrate larger trends at work, and yes, a 50-day and 200-day crossing speaks to the degree of weakness in yields,” he said.

“As far as predictive power, it can be quite a coin flip, but usually coincides with further weakness, in this case declining yields,” he said.

“This is not something 95% of engineers ever look at, or at least myself and my colleagues, as a reliable predictor,” he added.

Yet the deadly cross in yields points to the seemingly paradoxical movements in government bond yields at a time when mounting evidence of higher-than-expected inflation, an abomination to a bond’s fixed value, should push yields higher, not lower. .

Frank Cappelleri, a desk strategist at Instinet, told MarketWatch that the questionable behavior of yields this year against the backdrop of expectations of an eventual decline in asset purchases by the Federal Reserve and mounting price pressures is worth noting. keep an eye on.

“It’s certainly an interesting development, given the steady rise in yields last spring and the turnaround since then,” he said of the death cross.

The director of Instinet said that periods of death, when the 50-day yield drops below the 200-day yield, are generally pretty good predictors of further declines in yields. The attached chart shows ONLY the 50 days (blue) and 200 MA (red) over the past two decades.

via Instinet’s Frank Cappelleri

Chartists also like to point out that death crosses, and the inverted gold cross, tend to confirm rather than predict patterns in the market.

Cappelleri said that could be the case this time as well. He said an important development to watch would be if the 50-day moving average stayed below 200 days for an extended period of time. “If so, it could be a sign that the tariffs have more downsides,” he said.

For investors this week is Jackson Hole economic symposium, where some analysts believe the Fed will announce the start of a pullback on its $120 billion monthly purchases of Treasury bills and mortgage-backed bonds, and that a $15 phasing out of the program at each central bank meeting billion will run.

However, there are growing doubts as to whether Fed Chair Jerome Powell will provide deep insights into the winding-down plans on Friday or even mention a reduction in Fed accommodation, in light of concerns about the spread of the delta variant of COVID-19.