Whilst there are no signs of a reversal in the broader downtrend for the US 2 vs 10 year swap curve, signs are beginning to appear that a correction will occur, according to George Davis, Chief FIC Technical Analyst at RBC Capital Markets.
Flattening momentum has dominated the US 2 vs 10 year swap curve for the past year. However, Davis says a number of bullish divergences are beginning to appear on a number of indicators, including the RSI, and this has increased the probability that a price correction will occur (see Chart). This would be confirmed on a close above resistance at 69 bps. He believes the resulting trend reversal would set the stage for a correction toward 75 and 81 bps as the divergences attempt to unwind.