Treasury Yield Brush With a `Death Cross' Cheers Bond Bulls

(Bloomberg) -- In a positive technical sign for bond bulls, the U.S. 10-year Treasury yield is heading for a so-called death cross pattern.

It occurs when the 50-day moving average crosses below its 200-day counterpart. While many traders are skeptical of its import, others argue it presages further weakness in the benchmark yield.

Treasury Yield Brush With a `Death Cross' Cheers Bond Bulls

“These crosses are compelling developments when it comes to the yield on the U.S. Treasury note,” wrote Miller Tabak + Co. equity strategist Matt Maley, in a note to clients. “It should indicate long-term yields will continue to head lower as we move through the first quarter.”

This has happened every time the pattern has emerged in the benchmark over the last decade, according to Maley. The 50-day moving average dropped below its 200-day counterpart during trading Thursday, and the death cross will be confirmed if it stays that way at the close.

The 10-year Treasury yield fell 3 basis points to 2.68 percent in Asian trading Thursday after minutes of the Federal Reserve’s December meeting revealed policy makers took a more cautious approach to further rate increases than their statement indicated. The yield is down over 50 basis points from its November peak.

“When a death cross takes place, the ‘further decline’ is not always immediate,” Maley said. “In fact, yields sometimes bounce for a short period of time after a death cross. However every time we’ve seen one, it was followed by another leg lower for yields before long.”

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