For the second week in a row, the “most important” chart is the yield on the 10 year Treasury bond (symbol: $TNX.X). See figure 1 a weekly chart.
Figure 1 $TNX.X/ weekly
Did QE3 wake up the bond vigilantes? From a technical perspective, there are several clues that this move in Treasury yields may be significant. The close below the 1.539 pivot and the subsequent close back above that pivot has catapulted prices to prior resistance levels at 1.869 to 1.897, but most importantly, yields have yet to move back into the trend channel. So the jury is still out on whether the bond vigilantes have awoken. In the absence of sustainable economic growth, rising Treasury yields should be a sign of inflation, and this would be a big headwinds for equities. If the yield finds itself back inside the down sloping trend channel, then 2.475% yield on the 10 year is not out of the question.
Of note, our inter market bond model remains neutral on Treasury Bonds for 5 weeks now. It is within this context that I believe yields on the 10 year Treasury can push higher.