Examination of Long and Short – Term Interest Rates – 07/07/23

The 04/30/23 blog “Examination of Long and Short – Term Interest Rates – 04/28/23” noted the 30 – Year Treasury Yields (TYX) from its peak in October 2022 appeared to be forming an Elliott Wave – Horizontal Triangle. 

The daily TYX chart courtesy of Trading View updates its action.

On 07/07/23 TYX exceeded the peak made on 03/02/23 labeled as Minor wave “B”.  It now appears that the Horizontal Triangle from October 2022 to June 2023 is complete.  After completion of a Horizontal Triangle there’s usually a thrust in the direction of the primary trend – which in this case is up. 

The length of a post Horizontal Triangle thrust can sometimes be measured by the widest part of the triangle.  In this situation it’s the length of Minor wave “A” which was 1.012 points.  Adding 1.012 to the “E” wave bottom of 3.769 targets 4.781 as a potential peak for Intermediate wave (5). 

The 04/30/23 blog noted  “If TYX  does not go below the Minor wave “C” bottom, there’s a good chance TYX could rise for several months.  If long – term interest rates climb this could have an adverse effect on home and  auto purchase, as well as buying stocks on margin.” 

There’s a very good chance longer term interest rates in the U.S. could rise until at least September 2023.

What about short – term interest rates/yields?  The 04/30/23 blog examined the chart of the 13 – week Treasury Bill rates (IRX) and speculated there could be a pause in the rise of short-term interest rates.   At their May 2023 meeting the FOMC raised short-term rates.  The FOMC paused rates at their June 2023 meeting.

The monthly Two – Year Treasury Note – futures chart (ZTU23) courtesy of Barchart.com illustrates its long-term history.  

As Bond/Note prices fall rates/yields rise. 

The Commitment of Traders (COT) report tracks the futures contracts of three groups: Commercials, Large Speculators, and Small Speculators.   The Commercials are the group to follow, they have the most contracts and knowledge.

The Commercials currently have the largest net long position in Two – Year Treasury Note futures ever recorded.  This implies a bottom could soon be made in Two – Year Treasury Notes.  When the Notes bottom and rise – two – year rates/yields will decline.

Supporting evidence for a Two – Year note bottom comes from the monthly RSI which is close to forming a significant bullish divergence.  Monthly MACD is close to a bullish lines crossover.

Currently the U.S. yield curve is inverted.  Short-term yields are higher than long-term yields.  It appears the process of un inverting may soon begin. 

However, if long – term yields rise it could at least for the next several months have an adverse effect on the U.S. economy and stocks.