We’ve posted several pieces on the Treasury market about the bond’s positive technicals versus poor fundamentals. The 10-year rate is now close to piercing through key resistance at 2.83 percent. It is difficult to fundamentally determine why rates are moving higher: 1) a change in economic fundamentals — stronger growth, increase in inflationary expectations; 2) sovereign credit concerns spilling into U.S. markets; 3) reduced foreign capital flows into Treasuries; 4) Fed’s QE2 decision to focus on shorter maturities.
Probably all of the above, in our opinion. The bullish case, stronger economic growth, should be confirmed by stronger equities and a sharp rally in the dollar. That is, a reversal of the weak dollar/strong equity relationship of the past year.
Nevertheless, a close above 2.85 percent would put the focus on next move to the 200-day at 3.15 percent. Stay tuned!