1.95% was a tremendously important technical ceiling in late 2019 before covid. It lay dormant for more than 2 years until the early 2022 sell-off put it back on the radar. We added it to the list of key levels on January 10th when yields moved into the 1.7s. While we hoped we wouldn’t see it quite so quickly, today’s the day.
So what’s in a technical level anyway? Is it a magical line in the sand that makes some course of events more likely in the future? Not exactly. The highest and best use of any significant technical level is to serve as a milestone for the legitimacy and significance of market movement.
In other words, if bond yields consistently bounce at a certain and then break above that ceiling, that break is more significant (or relevant, legitimate, meaningful, ominous, etc…) than any other random move.
One of the most similar examples from the not-too-distant past would be the early 2017 bounce at the 2.62% ceiling. About a year later, bonds returned and broke through that ceiling. Momentum accelerated and yields continued higher all year. Technicians love to look at past patterns like this and infer some risk of a repeat performance when present patterns begin making the same moves.
But then, as now, an acceleration of selling pressure would be more readily attributed to the fundamental landscape. In 2018, the tax bill was just passed and the Fed was increasingly tightening monetary policy. All the while, the domestic economy continued to expand. All of the above adds up to higher rates and it really had nothing to do with the 2.62% technical level.
In the present, we’re also contending with tighter Fed policy and a different version of economic growth. If yields break meaningfully higher than 1.95 (say, well into the 2.0s), it will simply be because that’s exactly where they are expected to go based on the Fed policy outlook and any semblance of an ongoing economic expansion.
Last but not least, and as a bit of an aside, European bonds continue being less than helpful.