Bond yields continue on their rising trend with the yield on the U.S. 10-year T- note now at 3.2%. They were up nearly 20 basis points (bps) since that rotten payroll report last Friday and now up about 60bps since the FOMC meeting that ushered in QE2 – nice call by the Fed to try and bring long-term rates lower. (Did you know that the low in yields was turned in a full month before that meeting?) Good thing the central bank doesn’t have to mark-to-market its portfolio. Take note that the 10-year note has broken above the 200-day moving average (m.a.) of 3.07% and must find support at 3.25% or things may turn ugly over the near- term (and will only break once the equity market figures it out).
The 5-year note also broken above the 200-day m.a. of 1.80% and is finding support — it needs to as well — at the 1.85% level. Watch mortgage rates soar and housing activity and prices dive even more in the aftermath of this bond market action. While we are still long-term bond bulls, we have to respect the technical picture, the supply binge this week, and the generally illiquid conditions heading into year-end. Remember what happened in 2009 — from December 8 to December 31, the yield on the 10-year note went from 3.4% all the way to 3.85% — you did not want to partake in that sell-off, believe me. And in January, when liquidity returned to the market, half that sell-off was reversed. --- Today