Mapping the Market: Increases in key US interest rate may slow, but relief for borrowers not yet in sight

The rise in a closely watched US interest rate that affects everything from ​the cost of mortgages to corporate debt may be set to slow, ​though it has yet to show signs of outright easing, ‌technical ​analysis indicates.

Click here for a detailed technical analysis chart. The 10-year US Treasury yield has been on a tear this year, surging higher as the US-Iran war ignited a rally in oil prices that fueled inflation expectations, while receiving a further boost from ‌buoyant US growth and debt-financed corporate AI investment.

The yield recently rose above 5%, something it has rarely done over the last 20 years, and surpassed a barrier that technical analysts use to evaluate extremes in market movements. This metric is called the upper yearly Bollinger Band, currently near 5.13%, and this is only the second time the 10-year yield has risen above ‌it since 1984, according to data supplied by LSEG. One thing analysts look for in a rising chart is resistance — levels that can halt, slow or accelerate ‌a move. One key resistance level was the 1993 low of 5.1514%, which the 10-year yield broke this month. If it holds that high ground, focus will shift toward more elevated long-term targets.

However, the move is beginning to look stretched. Sustained trading outside the yearly Bollinger Bands is uncommon and typically requires truly runaway momentum, as was the case in the late 1970s and early 1980s. This is where chart watchers turn ⁠to momentum ​gauges to evaluate the sustainability of a move. ⁠One such gauge is the Relative Strength Index (RSI). On an annual measure, this indicator has climbed to its highest level in more than 40 years. On a monthly and weekly basis, RSI is flashing its ⁠most overbought readings in about two years or more, raising doubts about whether the 10-year yield can continue rising without a pause.

None of this guarantees a pullback, but it suggests the advance may be ​becoming harder to sustain. On the downside, analysts would look for support — the opposite of resistance, a floor or stopping point for a slide — which sits in ⁠the 5.04%-5.02% zone. A break below 4.92% would strengthen the case for a deeper retreat, while the rising 20-week moving average, which should be near 4.70% this week, is an important line in the sand. Chart ⁠watchers ​use moving averages to strip out price extremes to gauge the underlying trend. The 10-year yield has not posted a weekly close below the 20-week moving average since late February.

However, the longer the 10-year yield remains above 5.1514%, the more likely traders will be to raise their targets to the 2007 high around 5.33%, followed by the ⁠50-year moving average near 5.65% and then 6.24%. What the chart shows:

(Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The ‌column does not constitute investment advice ‌or trading recommendations. ) (Terence Gabriel is a Reuters market analyst. The views expressed are his ​own. Editing by Burton Frierson and Nia Williams)