Readers know that my absolute favourite yield curve chart is the 2's 5's US curve. I still think it will be important in its signaling power for the US economy and the Fed.
But, for now, I think the most interesting curve is the 2's 30's where we have a "Domino'esque" setup that could lead to 4 double bottoms.
Double bottom 1.
On Friday we closed above both the 200-day MA at minus 22.7 bp's and the double bottom neckline at minus 21.8 bp's
This suggests a target of minus 6 bp's with good resistance at minus 8 bp's
Double bottom 2.
The level at minus 8 bp's constitutes a second potential double bottom above which targets as high as +24 to +26 bp's.
In addition this curve posted a bullish outside week last week (as did 2's 5's and 2's 10's but this was the most impulsive one) that also suggests a test of minus 8 bp's
Double bottom 3.
This potentially sets us up for one on my favourite patterns- A Double Bottom within a triangle.
The neckline of this stands at +9 bp's and a break above would suggest as high as +60 bp's
Double bottom 4.
And finally the BIG ONE at + 6 to +9 bp's. A break here (at least weekly close) would create a full blown reversal and suggest a move as high as +125 to +135 bp's
Good resistance is likely at the 200 week MA at +45 bp's.
The momentum on this move on Friday was clearly a "bear steepening" trade with the main likely catalyst being the "Dumpster Debate". End of week/month/quarter/half-year may also have had an impact.
It seems way too early for the political trade so that impetus might calm a little in the days ahead.
I could clearly envisage how the first couple of these double bottoms could still have a "bear steepening" bias to them but still think that IF numbers 3 and 4 were to complete it would far more likely be as a consequence of a morph into a bull steepening in line with my big picture thoughts expressed over the weekend in Diary: Week 38- 4th Of July Fireworks.
In that respect I still look at 4.70% being pivotal on the US 2-year yield, with a break below (weekly close) suggesting a move towards 4.40-4.42% and a potential inversion to the Fed Funds rate of 110 bp's (taking us into the territory associated with Fed rate cuts)
There will be a lot of "water under the bridge" before we likely see breaks of the subsequent double bottom necklines but for me these are the levels to watch in signaling a possible domino effect higher in this curve.
