Two-Year Yield May Exceed Level in January: Technical Analysis
March 11, 2010, 11:38 AM ESTBy Inyoung Hwang
March 11 (Bloomberg) -- The Treasury two-year note’s yield may climb beyond 1.045 percent, a level last reached in January, as the Federal Reserve prepares to phase out economic stimulus measures, according to Royal Bank of Scotland Plc.
The long end of the yield curve will likely outperform the short end, Stamford, Connecticut-based William O’Donnell and Aaron Kohli, strategists at RBS Securities Inc., wrote today in a research note. The difference in yield between 2- and 30-year Treasuries was near the highest level on record before today’s $13 billion auction of the long bond.
“In a backup, the front end is likely to be disproportionately punished especially if that backup is triggered by fears of a Fed move,” wrote the analysts, whose firm is one of the 18 primary dealers obliged to participate in Treasury auctions.
The yield may first approach 0.95 percent, a level where orders to buy the security have been clustered, according to RBS, drawing on stochastic analysis, which studies momentum to capture a security’s turns in direction.
“Daily momentum is bearish across the curve, and the long end is in the best spot,” O’Donnell and Kohli wrote.
Thirty-year bonds yielded 3.76 percentage points more than two-year notes before today’s auction. The difference increased on Feb. 17 to 3.85 percentage points, the widest since at least 1980. Today’s auction of 30-year debt follows yesterday $21 billion sale of 10-year notes, in which the bid-to-cover ratio, a gauge of demand, was the highest on record.
In technical analysis, investors and analysts study charts of trading patterns to forecast price changes in a security, commodity, currency or index.
--Editors: Dennis Fitzgerald, James Holloway
To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
