The 40-year trend of declining interest rates could be coming to an end as the 10-year US Treasury yield tests resistance against the most important trend line of all time, according to technical analyst Carter Worth of Worth Charting.
Despite a period of record inflation and an expanding economy, the Federal Reserve is raising interest rates to help cool down demand and tame inflation.
The 10-year US Treasury yield is pushing against a 40-year downtrend line that starts with the 1981 peak in interest rates.
The all-data log chart for US 10-year Treasury Bond yields is the most important trend line of all time, ever, in any and all markets. If the 10-year yield breaks higher or is rejected, it will have a wide ranging effect on the stock market and risk asset pricing in general.
If the 10-year US Treasury yield breaks above its 40-year downtrend, that could be seen as the start of a new uptrend, which would mean a continued rise in interest rates and pressure on stock prices. If the 10-year yield is rejected at the downward sloping trend line, one could expect a continuation of lower interest rates for longer, which could help boost valuations for risk assets and drive stock prices higher.
This is the exact same trend line in effect since the 1981 peak, and that line comes into play at 2.81%. Worth said to CNBC on Monday that he doesn't believe there's much room left for yields to advance higher, if we back away because recession type things are coming.
If Worth is correct, that would be a positive sign for stock market investors, who suffered a 10% correction in the S&P 500 earlier this year.
The 10-year US Treasury yield hit 2.83% on Thursday, which is slightly above the line in the sand that Worth is closely monitoring. The stock market could get even harder if yields don't stop their upward trajectory.
The 10-year Treasury yield could be the final nail in the coffin for the long bull market in bonds if the Fed hikes interest rates by half a point in May.
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