Interest Rates Are Looking Over The Cliff

Interest rates are at a very critical level. If this support doesn't hold, you're going to see interest rates drop like a rock. Things start to get very interesting below 2.6% on the 10yr Note Yield.

Here is a chart of the 10-yr Treasury Yield Index. This area around 2.6% has held since early February. But here we are testing it for the 3rd time in 6 weeks. We are also testing these 2 uptrend lines from June's gap for the 5th time. The more times a level is tested the higher the likelihood that it breaks:

After that failed breakout around New Years, I think the path of least resistance is still lower. As bearish as I've been about interest rates all year, this would make things much worse. A break here would put rates below all of February's support and we would also now have follow through below the 200 day moving average. This would probably take rates well below 2.5% and in all likelihood down to 2.3%.

A move like this would send US Treasury Bonds soaring. (See here for more on bonds). As far as stocks are concerned, I would expect to see further selling in this scenario.

What would change my mind? If rates can stick these lows and rally through the March highs, I think that would be an extremely bullish development for rates (bearish for bonds). This to me is the low probability outcome and is not something I'd be betting on.

Rates are right on the edge of that cliff. And based on all of the information we have, I think they jump.

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Tags: $TLT $TNX $ZB_F $ZN_F $SPY