Ten year Treasury rates again rallied this morning despite the Federal Reserve's massive buying program, intended to drive rates lower. The Wall Street Journal attributed the move to hopes for an Ireland breakout as well as strong economic data.
Could be that banks and others who have made massive bets on Treasuries are looking for an opportunity to once again, stick it to the tax payer by taking advantage of the Fed's guaranteed buying program at near historical record high prices. Don't believe that to date, the Fed has exhibited any solid market timing skills. While years ago (1996), Alan Greenspan cautioned markets about "irrational" exuberance, the market continued to rally for four more years before finally giving it all back. I doubt that the Fed, under new leadership, brings new skills to the table. This is what frightens me most about their continued attempts to stimulate the economy with their quantitative easing strategies. By the time they pull the plug, the smart money will be out and only the tax payers who have "full faith" in the government, will be left to absorb still more banking losses.
Whether rates will surely break out is yet to be seen. The closing high, three days ago, was above the 2.90% level. 10-year rates are sitting firmly at 2.95% at this moment. Should we close at current levels, taking out the closing high of three days ago, expect a run to 3%. Should we shoot through this level, the Fed will be nervous and so will the stock market.
Stocks, despite a 170 point gain on the Dow this morning, still remain off of their highs. I expect the stock market to firm up here and attempt to make new highs next week. Should we do so, we might be in for a bit more of a rally.
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