The Technical Breakout of the German 10-Year Bund Yield

On September 4th, the German 2-year and 10-year bund yields reached cycle lows of -93 and -71 basis points respectively, then subsequently rose to -70 and -45 basis points. During late September and October, yields then retreated to -75 and -55 basis points.

The breakout of these yields will occur, given the 2-year bund yield, currently at -.712, rises above the high of -71 basis points and the 10-year bund, currently at -.469, rises above -45 basis points (see Chart I).

Chart I

German yields reaching breakout level would indicate an increase of the U.S. 10-year toward the high of 1.91%, versus today at 1.64%, up from a recent low of 1.51%. A breakout would also confirm the cycle low in yields from September 4th. If the German 10-year bund returns to a positive yield, the U.S. 10-year T-Note yield is expected to increase to 2.3%.

A breakout would also forecast a rate reduction by the Federal Reserve to a range of 1.75% to 1.50% and possibly to 1.25% later this year. The positive U.S. yields curve bodes well for the growth in the brokered CD market and strength in banking, as deposit rates remain under control and lending rates increase.

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John E Rickmeier, CFA, President, jer@idcfp.com

Robin Rickmeier, Marketing Director