The Treasury market’s 2-year yield yesterday (Sep. 15) broke the ceiling, rising nine basis points to a new four-year high of 0.82%, based on Treasury.gov’s daily data. After repeatedly testing but never breaking above the low-0.70% range this year, this key yield—reportedly the most sensitive spot on the curve for rate expectations—pushed above the old barrier on Tuesday. The timing of the increase–ahead of tomorrow’s policy announcement from the Federal Reserve–looks like a decisive bet that the central bank will begin raising rates when it issues a public statement on Thursday.
The benchmark 10-year yield also rose yesterday (black line in chart below), gaining ten basis points to 2.28%, the highest in more than a month. But in contrast with the 2-year yield (red line), the 10-year Note’s current yield remains well below its peak of recent years—roughly 3.0% in early 2014.
Is the 2-year yield’s decisive rise surprising? Not necessarily. Upside momentum has been a familiar sight for this maturity for some time, based on a set of exponential moving averages (EMAs). Although there have been some wobbles this year—notably in the spring—a bullish pattern has remained a constant for this maturity. Based on the current trend through yesterday, the 2-year yield’s EMA profile anticipates even higher rates in the near term.
The 10-year yield, on the other hand, is in a holding pattern when viewed through the EMA prism. In fact, the 50-day, 100-day, and 200-day EMAs for this maturity have converged at roughly the same level—the equivalent of sitting on the fence.
What might alter the equilibrium in the 10-year yield’s momentum structure—or confirm or reject the 2-year’s latest rise? The answer, of course, will emerge in tomorrow’s headline-grabbing event: the Fed’s policy circus, which begins at 2:00 pm EST. Don’t forget to buy your popcorn ahead of the show!