Rightly so, many want to see housing values stabilize, and mortgage defaults to decrease. The Fed (banks like free money), Treasury (cheap US Debt is the best kind of debt), Congress (constituents have been restless), and our President (it's a win-win scenario, do it!) all want this. So, again, interest rates must stay at historic lows for an extended time.
However, the risk in holding 10-yr Treasury Notes ($TNX) has gone up (the demand for equities has lowered the demand for treasuries, and therefore yield must go up). Since January 2009, T-Notes have been on a rise, each time making a lower support trend line, and failing it. Only then to move slightly higher, except for the most recent move, which did not break the June high.
With the recent Goldman Sachs fraud charges, and increased talk of financial reform legislation, the political arm has swept in to potentially break the lower resistance of the T-Notes.
This is a most dangerous game, because the recoil of a failed breakout at the 3.5-3.8% level could land T-Notes into the 5% range. Not a horrible place to land, but uncomfortable in this climate.
A higher T-Note rate will put additional pressure on the interest rate.
So, the recent SEC fraud charges and increased bank reform talk has again created a needed break in equities. However, what damage has this done, if any? A new support range may be formed. My three day rule says, many panic down days ripple for three days, and stabilize in the third day, as the news has finally made a full circle.
As demand for the "safety" of US Treasuries has increased, therefore the T-Note interest rate will decrease as investors cram into Treasuries.
But, what will it take to scare away investors to stay in treasuries long enough to keep the rates down? Just watch the charts, and be aware of the paths it offers.
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