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Risk-free rates set for further falls, STI's upside break unsuccessful

Risk-free rates are likely to fall further. However, the STI fails to breakout of resistance

Yields on the 10-year Singapore Government Securities (SGS) ended the week of Nov 28 to Dec 2 at 2.98%. Yields on the 10-year US treasuries as at Dec 2 are at 3.52%. Technically, the yield on the 10-year US treasuries has confirmed a break below its 50-day moving average at 3.88%. This a negative chart move, but positive for equities because it means the US 10-year yields are able to fall further.

However, at 3.52%, support may materialise as it is the level of 100-day moving average. As such there could be a rebound in the yield, which is not good for equities. In general though, medium term indicators are pointing to lower levels. Quarterly momentum continues to fall but remains above its equilibrium line for the time being. When it falls below its equilibrium line, the decline in 10-year yields could accelerate.

The Straits Times Index ended the week of Nov 28- Dec 2 at 3,259, up 15 points week-on-week. On Nov 28, the STI made a high of 3,292 and retreated in subsequent sessions.

Interestingly, volume expanded as the STI attempted to rise. In addition, quarterly momentum has moved above its equilibrium line which is a positive move. Directional movement indicators appear supportive of further rallies. The resistance area stays at 3,292-3,000. A break above this level could materialise before the end of the year.  The trigger is likely to be a further decline below 3% in the yield on the 10-year SGS.  At present, the flat 200-day moving average at 3,225 provides support.

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