A chart pattern is developing in the benchmark 10-year Treasury yields, which could predict that one of the most important rates in the U.S. economy is set to rise.
After increasing sharply at the start of the Iran war, Treasury yields have entered what technical analysts refer to as a period of consolidation - when prices, or yields in this case, retreat from their recent highs but not far enough to convince traders that they are reversing course completely.
During this consolidation phase, the movement of 10-year yields has started to resemble a chart formation known as a "cup and handle," which usually raises expectations of a further rise. The pattern is characterized by an initial high - in this case the March 27 peak of 4.484% in 10-year yields, according to data supplied by LSEG - followed a U-shaped pullback, then another advance back toward, but not above, the original peak. This development forms the "cup" shape on the chart.
To become a true cup and handle formation, 10-year yields must dip again--but not by much--thus forming the "handle."
Once the handle forms, technical analysts would wait for a close above 4.484% to confirm a resumption of the previous rising trend for 10-year yields, which could carry it up to 4.60 or higher.
The pattern is still in the development phase and it's not clear whether a handle formed when yields fell Thursday and Friday, or will form later.
However, if the yield were to slide below 4.35%, it would signal that a cup and handle outcome is unlikely.
What the chart shows:
