TNX 10-Year Treasury Note Yield Weekly Chart

Keystone was one of the very few forecasters that called for lower yields during 2011. The multi-year downward channels are clearly visible with yield having a continual lower bias. The majority of traders were positive that the Fed's quantitative easing would lead to an explsion in yields during 2011; they were all wrong. The big yields will be coming at some point in the future as hyperinflation kicks in but in 2012 most traders will probably be frustrated again. Not by yields dropping all that much more signficantly, but rather that yields bump along with a sideways vibe for the next year or more.

Deflationary conditions remain likely for the U.S. economy and Keystone's Inflation-Deflation Indicator has signaled Disinflation for the last week. Note the red circles above which all show higher values in the near term as compared to three years ago, when yields were higher, hence, positive divergence. This created the bounce in yields shown by the red arrow. Since summer, yields are moving in the range between 1.80% and 2.25%. Look for sideways yields for the foreseeable future.

When yields move sub 1.80% in the weeks ahead, early 2012, indicating that deflation is accelerating, Chairman Bernanke will step in with QE3. This will result in yields moving back up to the top of the larger sideways range of 1.70%-2.40%. Note that QE1 in 2009 resulted in yields climbing 200 basis points. QE2 starting late summer 2010 resulted in yields climbing 100 basis points. If Bernanke acts when yields drop towards 1.6%, and considering the subsequent bump may only amount to about 50 to 80 bips (less than QE2), that would allow the 2.40% resistance ceiling to remain in place for the foreseeable future. Bullishness in yields will be signaled by the RSI moving above 50% and the yield overtaking the 20 week MA resistance. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here or any links connected to this information. Consult your financial advisor before