Near-term Bearish Bond Yield Outlook

by Erik McCurdy

The following technical and cycle analyses provide short-term forecasts for the 10-year Treasury note yield. For intermediate-term outlooks see the latest intermediate-term forecast and for long-term outlooks see the latest long-term forecast.

technical

Yields closed sharply lower Tuesday (16 December 2014), returning to previous lows of the downtrend from April. Technical indicators are extremely bearish overall, strongly favoring a continuation of the decline.

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cycle

We are 7 sessions into the decline phase of the cycle following the short-term cycle high (STCH) on December 5. An extended decline phase that moves below the alpha low (AL) in October near 1.87% would reconfirm the current bearish translation and favor additional short-term weakness. Alternatively, a quick rebound followed by an extended rally phase that moves well above the STCH in November near 2.41% would signal the likely transition to a bullish translation. The window during which the next STCH is likely to occur is from December 29 to January 19, with our best estimate being in the January 5 to January 9 range.

• Last STCH: December 5, 2014
• Cycle Duration: 7 sessions
• Cycle Translation: Bearish
• Next STCH Window: December 29 to January 19; best estimate in the January 5 to January 9 range.

• Setup Status: No active setups.
• Trigger Status: No pending triggers.
• Signal Status: No active signals.
• Stop Level: None active.

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Short-term Outlook

• Bullish Scenario: A rebound and close above congestion resistance in the 2.30% area would predict a move up to congestion resistance at the 2.45% level.
• Bearish Scenario: A close below the recent low near 2.05% would reconfirm the downtrend from April and forecast additional losses.

The bearish scenario is highly likely (>80% probable).