Treasury 10-Year Yield May Decline to 3%: Technical Analysis

Sept. 30 (Bloomberg) -- Treasury benchmark 10-year yields are poised to fall to a four-month low of 3 percent, National Australia Bank Ltd. said, citing trading patterns.

Ten-year rates declined below 3.3 percent this week, which National Australia identified as a “barrier” after they reached that level in July and again this month, failing to push lower each time, based on closing levels.

“Yields are starting to slide,” Gordon Manning, a technical analyst for the Sydney-based bank, the nation’s largest lender, wrote in a report yesterday. “U.S. 10 years are about to fall below the 3.30 percent support level which should bring about immediate downside to the 3.00 area.”

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said he’s been buying longer maturity Treasuries as protection against deflation. Demand for the relative safety of government debt helped Treasuries return 2.1 percent since the end of June, heading for their first quarterly gain this year, based on Merrill Lynch & Co. data.

The yield on the 10-year note rose one basis point to 3.31 percent as of 11 a.m. in Tokyo, according to BGCantor Market Data. The 3.625 percent security maturing in August 2019 fell 3/32, or 94 cents per $1,000 face amount, to 102 21/32. The yield was as low as 3.27 percent yesterday.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

Curve Flattening

The difference between two- and 10-year Treasury yields narrowed to 2.30 percentage points from this year’s high of 2.82 points on June 5. It was 2.27 percentage points yesterday, the least since May 14. The so-called flattening of the yield curve indicates investors are cutting bets that inflation will pick up.

“There has been significant flattening on the long end of the curve,” Gross said yesterday in an interview from Newport Beach, California, with Bloomberg Radio. “This reflects the re- emergence of deflationary fears. The U.S. is at the center of de-levering as opposed to accelerating growth.”

Deflation is a general drop in prices, which can occur as part of an economic slowdown, making bonds more attractive because it enhances the value of their fixed payments.