Bonds Rally But Any Upside May Be limited

Bond yields retreated from their highs yesterday for the third consecutive day due to banking problems in a small EU nation. The 10-year yield fell from a high of 2.09% two weeks ago to close at 1.91% yesterday but any downside may be limited by some very important technical levels.

TNX_20130319

The 10-yr yield is now testing the lower trendline of the up-channel that formed since the start of this year. Very strong support is at 1.84% and below that is the 200-day moving average support at 1.72%. This latest level could be reached if there are some bank defaults in EU due to current situation. If a solution is found soon yields may rally strongly to test the 2.09% high and towards 2.20%.

TLT_20130319

The daily chart of TLT paints the same story as the 10-year yield chart. The market rally to test trendline TL1 yesterday and close just below it. Strong resistance is at $120.7 and above that is trendline TL2 and the 200-day moving average resistance near $123. Any upside is limited and a rally towards those resistance levels will possibly fade soon based on current picture. However, keep in mind that the picture may change at any time.

Disclosure: no relevant position at the time of this post and no plans to initiate any positions within the next 72 hours.. 

Charting program: Amibroker (Charts created with AmiBroker – advanced charting and technical analysis software. http://www.amibroker.com/”) 

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