Rising Yields On U.S. Treasury 10-Year Note Approaching Key Level

By Jim Donnelly, Olson Global Markets

The enormous need for the U.S. Treasury to raise cash now may be coming home to roost. An almost endless supply of U.S. Treasury bills, notes and bonds that have to be auctioned off on a regular basis is now battling corporate debt issuers for investors. This is underscored by the fact that a number of short-term corporate fixed income yields are now trading below those of U.S. treasuries. Further out the yield curve, the spread between AAA corporate bonds and U.S. treasuries has narrowed dramatically over the past 24 months from almost 120 basis points to just 30.

Technically, the yield on U.S. Treasury 10-year notes (TNX) is now approaching key resistance with its price approaching key support (since there is an inverse relationship between the two). A break above the 3.95% level on U.S. Treasury 10-year notes would clearly be reason for concern since the next key resistance area (in terms of yield) sits near the 4.70% area.

Such a move up in yields would not only cost U.S. taxpayers more in interest expense, but it would also likely dampen both housing sales and starts with mortgage rates rising in concert.

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