US10Y Yield Range Percentile | JeffreyTimmermans

11 Feb

US10Y Yield Range Percentile

The "US10Y Yield Range Percentile" Indicator provides insights into the relative positioning of the U.S. 10-Year Treasury Yield (US10Y) within a specified lookback period. It highlights key valuation style conditions, helping traders assess market sentiment based on yield movements.

Why is the US 10-Year Treasury Yield Important?

The U.S. 10-Year Treasury Yield (US10Y) is one of the most critical benchmarks in global finance. It reflects the cost of borrowing for the U.S. government and serves as a risk-free rate that influences interest rates across the economy.

Macroeconomic Indicator:

• Rising yields suggest strong economic growth or inflationary pressures, often leading to tighter monetary policy.
  
• Falling yields indicate economic slowdown, deflationary risks, or increased demand for safe-haven assets.
  

Impact on Financial Markets:

• Stock Market: Higher yields reduce the attractiveness of equities, while lower yields support risk assets.
  
• Credit Markets: A rising 10-year yield increases borrowing costs, impacting corporate debt and mortgage rates.
  
• Global Capital Flows: US10Y is a key driver of capital allocation worldwide, affecting currency valuations and capital flows into emerging markets.
  

Correlation with Risk Assets (Especially Crypto):

• Crypto markets, particularly Bitcoin and Ethereum, have shown a strong inverse correlation with US10Y yields.
  
• When yields rise, risk assets tend to sell off due to tighter financial conditions.
  
• When yields decline, liquidity flows into speculative assets, boosting stocks, crypto, and growth sectors.
  

Key Functions of the Indicator

Range Calculation:

• Computes the highest high and lowest low over a user-defined period (default: 63 days).
  
• Measures the current yield’s position within this range.
  

Range Percentile Calculation:

• Determines the percentile rank of the current yield within its range.
  
• A higher percentile indicates higher yields, often associated with Risk OFF conditions.
  
• A lower percentile suggests lower yields, signaling Risk ON sentiment.
  

Optional Smoothing:

• Enable/Disable: Users can enable Simple Moving Average (SMA) smoothing to reduce noise.
  
• Default smoothing length: 10 periods (can be customized).
  

Threshold Levels & Background Coloring:

The background color represents the current market regime (valuation based), based on the US10Y yield percentile:

• Risk ON (Bullish): When the percentile falls below the lower threshold (default: 20).
  
• Neutrally Positive Zone (also Risk ON): Between 20 and 80 percentile.
  
• Risk OFF (Bearish): When the percentile rises above the upper threshold (default: 80).
  
• Important: Background Coloring is NOT a Leading Signal.
  

The background color provides a visual representation of valuation periods, but it is not a leading indicator for price movements. Instead, traders should focus on the orange US10Y Range Percentile line, which is the key signal within this indicator. The colors behind the line below the chart are leading. The background colors behind the price chart are more of a valuation style indications.

• When the orange line enters the Danger Zone (above 80 percentile), it signals that yields are elevated, and risk assets (such as stocks and crypto) are at increased risk of reversing downward.
  
• While the background coloring helps to visualize market conditions, price reversals tend to occur when the percentile line is in extreme zones rather than when the background color changes.
  
• Traders should monitor the percentile line closely, as it provides a clearer signal of potential shifts in market sentiment.
  

Visual Elements

Range Percentile Plot:

• Displays the smoothed or raw percentile value over time.
  
• Helps identify shifts in yield positioning.
  

Threshold Markers & Fill Zones:

• Key percentile thresholds (0, 20, 80, 100) are marked with horizontal lines.
  
• The area between 20-80 percentile is filled to indicate the neutral zone.
  
• Extreme zones are highlighted to emphasize significant shifts in risk sentiment.
  

Dynamic Labeling:

• A real-time percentile label appears next to the latest data point.
  

Alerts & Notifications

Risk OFF to Risk ON Transition:

• Alert triggers when the percentile falls below the lower threshold (yields decreasing).
  

Risk ON to Risk OFF Transition:

• Alert triggers when the percentile rises above the upper threshold (yields increasing).
  

Conclusion

• The crypto market is highly sensitive to macroeconomic conditions, with Bitcoin often behaving like a high-beta tech stock.
  
• A declining US10Y yield signals looser financial conditions, increasing demand for risk assets like crypto.
  
• A rising US10Y yield tightens liquidity, leading to sell-offs in Bitcoin, Ethereum, and altcoins.
  
• Tracking the US10Y percentile position helps traders anticipate market shifts before they occur.
  
• This indicator serves as a leading signal for understanding market risk appetite by tracking Treasury yield movements. A decline in yields typically favors equities and risk assets, while rising yields indicate a shift toward safety and risk aversion.
  

Credits

This indicator was inspired by and builds upon the work of TomasOnMarkets. While incorporating significant enhancements, it acknowledges the foundational concepts provided by this original source. Thank you for sharing your input on this important indicator. We are honored to use it and to further improve upon it.

-Jeffrey

11 Feb

Nota Keluaran

Renamed the background coloring to valuation.

Important Note:
The background color provides a visual representation of valuation periods, but it is not a leading indicator for price movements. Instead, investors should focus on the orange US10Y Range Percentile line, which is the key signal within this indicator.

The colors behind that line below the chart are more leading. The background colors behind the price chart are more of a valuation style indications.