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Market Analyst
The U.S. 10-year Treasury yield is holding at a critical support level aligned with a Fibonacci retracement of its broader two-year advance, and that level is where the direction of risk sentiment across markets is being tested. 10-year Treasury yields shape risk-on and risk-off sentiment because a sustained break lower can support risk appetite across markets, while a firm hold, backed by persistent inflation concerns and Federal Reserve rate hike expectations, can cap it. The effect reaches well beyond bonds, into the U.S. dollar, crude oil, precious metals and U.S. equity indices. Each of those markets is sitting near its own technical turning point at the same time.
Razan Hilal, StoneX Media Market Analyst, covers forex, stocks, commodities and equity indices through technical and intermarket analysis. That coverage gives insight into how Treasury yields, the U.S. dollar and crude oil feed into the shifts between risk-on and risk-off sentiment.
U.S. 10-year Treasury yields are holding at a critical support level that aligns with a Fibonacci retracement of their broader two-year advance. The level sits at the center of the split between a broad market reversal and a deeper risk-off move. "Another key chart I'm watching as the US elections approach, and for potential signals for either potential market reversal and the emergence of risk-on sentiment or the extension of risk-off sentiment, is the US 10-year Treasury yields," Hilal says. Notably, the yield chart sits alongside the U.S. dollar index and Brent crude oil among the major charts that frame positioning across markets. A decisive move away from this support is one of the clearer signals of which way risk appetite is turning.
A sustained breakdown in U.S. 10-year Treasury yields below their current support would remove one of the main brakes on risk appetite across markets. According to Hilal, such a breakdown "may potentially further support the risk-on appetite across the markets". That shift would register in U.S. equity indices, where the Nasdaq still needs to close above the declining resistance that has capped it for months to point back toward record highs. The S&P 500 faces a similar test, needing to climb back above the uptrend it recently broke. Bitcoin is tracing a pattern similar to U.S. indices, so a bullish shift in risk sentiment across markets can carry into the Bitcoin chart as well.
Persistent inflation concerns, price surges and Federal Reserve rate hike expectations are keeping U.S. 10-year Treasury yields supported at their current level. A firm hold in yields, Hilal explains, "can possibly keep or cap the broader risk-on sentiment across the markets". Rate hike pricing on the CME FedWatch tool, which holds above 70%, shows how firmly those expectations remain anchored. Brent crude oil ties into the same inflation story, since a steeper drawdown in oil can relieve markets of broader inflation and risk-off concerns. "Speaking of crude oil, one of the charts that is leading the broader risk-on, risk-off sentiment across the markets," is how Hilal frames the link between energy and risk appetite.
Shifts between risk-on and risk-off sentiment surface first in a handful of charts and indicators that track the same forces as U.S. 10-year Treasury yields. The CME FedWatch tool shows how firmly markets are pricing Federal Reserve rate hikes, while nonfarm payrolls reports sit among the catalysts markets are weighing. Relative strength index readings on the U.S. dollar index, EUR/USD, gold and silver show when moves are stretched into overbought or oversold territory. Fibonacci retracement levels and long-running trendlines on the Brent crude oil and yield charts mark where a reversal or a continuation is being tested.
--- Written by Frédéric Guétin, StoneX Media Producer
--- Expert: Razan Hilal, StoneX Media Market Analyst
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