Ten year yields were not falling last week. Which may seem surprising to anyone who was paying attention to the financial media last week. What we actually saw last week was an excellent example of the behavioral finance principle that the market's perception of the present (and future) is actually a perception of the past. When New York traders got to their desk last Monday morning the ten year was trading at 2.62%. When they left on Friday it was at 2.61%. This morning it is at 2.63%.
Rates had begun falling below their June and July lows on Friday, August 6, the day of the last employment report. They continued falling throughout the following week and last Monday's open was a gap down from the previous Friday close. But basically by end of day Monday we had seen all of the decline. The action during the week might be described as range bound, with sellers coming in above 2.65% and buyers around 2.55%. There was a tendency to probe to the downside, but none of these probes resulted in continuation.
We can set up a possible Fibonacci pattern on the daily chart with a base formed from the low in late May (around 3.10%) and the high in early June (around 3.42%). Projecting extended targets downward we get theoretical targets at the 1.618 and 2.618 levels. The 1.618 target was approximately 2.90%. And we find that this level formed a floor through all of June and July--indeed, up until the breakdown on the day of the employment report.
The 2.618 target would be around 2.57%. Did we see that level come into play last week? A look at the daily chart shows that while rates probed below that level, most activity remained above it.
This is not to say that it is time to call a bottom in rates. But it is likely that we will see at least sideways action and probes to the upside in the near future.
If the decline were to continue this same Fibonacci pattern would call for the next target at the 4.236 level (1.618 to the third power). That would take us to 2.04%
