# Time for a Pause - A Look at 10 year U.S. Treasury Yields

This article was originally published on The Chart Store Observation area for subscribers on August 21, 2004.

One of the indicators used by technical analysts is Bollinger Bands In this Observation, we look at Bollinger Bands applied to weekly 10 year U.S. Treasury Yields.

The concept of Bollinger Bands is simple, applied statistics. In the top panel of the chart below, Bollinger Bands are plotted two standard deviations above and below a 20-week simple moving average of the close. The weekly close is used to calculate both the standard deviation and the 20-week moving average. Statistics tells us that approximately 95% of all observations will fall within two standard deviations of the mean (moving average).

The bottom panel uses a formula to depict %B, the close for any period within the Bollinger Bands. At 100 you are at the upper band, at 50 you are at the middle band and at 0 you are at the lower band. %B can exceed 100 or fall below 0, which occurs when the close is outside of the bands. At 110 you are 10% of the Bandwidth above the upper band and at -10 you are 10% of the Bandwidth below the lower band.

Summary points:

- Since bottoming in June, 2003, 10 year yields have begun a process of higher highs and higher lows. The red trend lines exemplify this.
- The most recent decline in yields appears to be losing steam. The Bollinger Bands are beginning to contract signifying that volatility is slowing down.
- The first four red circles starting from the left on both panels show how %B has gone from zero to 100 to zero to 100 and is now heading back towards zero.
- The fifth red circle seems to be the area that yields should pause. Notice that our bottom red trend line also intersects the range of the fifth circle. The lower Bollinger Band is also in the same area as well.
- If our analysis is correct, will the pause in the decline of yields be one that "refreshes," or one that leads to yields heading higher in the months ahead?

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