The big development in today's market session was the breakdown in the long bond. As you can see from the chart below bonds have been carving out a 5 week old sideways trading pattern bounded by approximately 122 on the topside and 119 on the downside. All sharp sell offs down to the latter level had met with buying that brought them back up to the top of the range where sellers once again surfaced. This impasse continued for more than a month with buyers looking to the Fed's entrance into the market during its timed purchases of longer dated Treasuries in association with its QE2 program. Sellers were looking at surging commodity prices and other signs of upticks in manufacturing activity and retails sales numbers which suggested that the constant pump priming was producing some impact on the overall sluggish economy.
A thing to bear in mind from a technical aspect is that the longer a market runs in a sideways pattern, the more significant the breakout tends to be when once it occurs, no matter whether that be to the upside or to the downside. In the case of the bonds, the breakdown was to the downside. I should also note that volume on the sharp move lower was very heavy, always a good sign that the move is legitimate.
Followthrough early next week will be important to see that this was not a one day wonder and that it is indeed the beginning of a major trending move.
If it is, what is so remarkable is that it is occurring in the face of total Treasury purchases of some $600 billion as announced by the Fed back in November. The entire purpose of that program has been to move long term rates lower and help with the dismal housing market and real estate sector which needs the low rates to boost demand so as to mop up the huge overhang of houses and properties hanging over this sector of the economy. With today's breakdown of the 5 year on out to the long end, interest rates are headed in a direction completely opposite than what the Fed has been intending!