Updated: 10-16-2017

Holding the Line
Updated: 11-Oct-17  04:45PM ET
Analyst: Pat O'Hare

The past month or so has been a tough slog for the benchmark 10-yr note. The numbers say it all.

On September 8, the yield on the 10-yr note stood at 2.04%. On October 6, the yield on the 10-yr note hit a session high of 2.40%.

The move to 2.40% last Friday was catalyzed by the September employment report, which was short on jobs but long on wage growth. In fact, the 0.5% increase in average hourly earnings left average hourly earnings up 2.9% year-over-year, which was the highest growth rate since 2009.

That strong wage growth validated a growing belief in the market that that the Federal Reserve will raise the fed funds rate again at its December FOMC meeting. There is more time -- and there will certainly be more data to digest -- in front of that meeting, yet something interesting unfolded in the Treasury market following the initial hubbub over the wage data.

Buyers returned to the mix and kept the 10-yr yield from closing at, or above, 2.40%, which was a significant technical line in the sand. The 10-yr yield settled Friday at 2.37%.

Those buying efforts limited the initial damage done by the employment report, but importantly, they also prevented a close above the July closing-high yield of 2.39% and left the May closing-high yield of 2.42% intact.

The 10-yr yield has traced lower since then as the hold of resistance at 2.40% seemed to squelch the selling interest that had been a steady undertaking since September 8 and presumably prompted some short-covering activity.

Today the yield on the 10-yr note is resting at 2.34%. We won't say that it is standing there, because we wouldn't expect it to be immobile.

The yield on the benchmark 10-yr note will continue to move. That's a certainty. It is the direction that remains an open question.

Given the failure to close above resistance at 2.40% with an ostensible basis for doing so (i.e. wage-based inflation pickup) could keep a lid on rising yields for the time being, particularly since there are residual concerns about the stock market being overbought, the geopolitical environment being overheated, and the passage of a tax reform plan being overestimated.

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