Research update

A running archive of US02Y (U.S. 2-Year Treasury Yield) views from Tactical Positioning.

US02YIf the war drags on, we should continue to see US02Y (U.S. 2-Year Treasury Yield) grind higher, forcing the Fed to hike and dampen growth. Or worse, if Trump forces cuts, the consequences will be even more dire when the reckoning comes.

US02YYields worldwide continue to explode to the upside, as I expected.
Higher oil prices for longer -> higher inflation expectations -> higher long-end yields -> lower equity multiples, especially for long-duration names such as the M7, including your favorite, NVDA (Nvidia).

US02YFor US02Y (U.S. 2-Year Treasury Yield), 3.8% and 3.6% are the key support levels to watch in the short term, while 4% acts as resistance. Should yields start to grind higher from the current level, a retest of the recent high around 4% is very much in play.

US02YUS02Y (U.S. 2-Year Treasury Yield) broke below my key support level around 3.8% on Friday.

US02YUS02Y (U.S. 2-Year Treasury Yield) is back above 3.8%. If it manages to stay above this level for a few days, it is likely heading toward the recent high of 4%. This will likely be coupled with rising oil prices.

US02YDespite Trump tweeting every 15 minutes this week to calm yields, it appears 4% is here to stay for US02Y (U.S. 2-Year Treasury Yield). The next natural target sits around 4.4%.

US02YThanks to Axios and Al Jazeera, the market appears to be buying the imminent peace-deal story, which is pressuring yields lower. For US02Y (U.S. 2-Year Treasury Yield), the 4% level remains key support. A clean break below 4% opens the door back to 3.8%.

US02YThe front end is the warning. US02Y (U.S. 2-Year Treasury Yield) backtested 4% from above and is pushing higher, even as the market prices a higher probability of a peace deal. Next major resistance sits around 4.4%. As long as 4% holds, the short end is telling us the Fed is not giving the market the dovish turn it wants.

US02YOil coming off took some pressure out of the long end, but the front end has not rolled over. US02Y (U.S. 2-Year Treasury Yield) reclaimed 4%, backtested it, and is still holding the short-term rising trendline. That keeps Fed hike alive. 4% is the line in the sand. As long as US02Y holds above it, the market is not pricing a dovish pivot. A push back through 4.2% opens the door to another squeeze in yields and another hit to long-duration risk. Lose 4%, and the next real support is 3.8%.

US02YAs noted previously, past TACOs have repeatedly coincided with yields reaching key levels. That is the risk we must monitor now. Fed funds futures now price roughly two 25bp hikes by year-end. That would put significant pressure on U.S. Treasuries and backfire on Trump’s attempt to suppress interest rates and ease the debt-service burden, with the national debt already on an unsustainable trajectory.

Technically, US02Y extended its advance to around 4.4% before pulling back. The ascending trendline remains the short-term support. As long as it holds, the path of least resistance remains higher. A sustained close above 4.4% confirms another leg higher.