Higher Yields Produce Cheap Financials

Yields begin December cheaper than the five-day, five-week and five-month modified moving averages on all the maturities, which is a clear sign that the risk is toward higher yields into year-end.

Yields currently straddle key longer-term levels on the five-year through 30-year, and to begin a renewed trend toward higher yields the five-year needs a weekly close cheaper than 4.532% and the 10-year needs a weekly close cheaper than 4.577%.

The 30-year bond stands above its 50-day simple moving average (SMA) at 4.669, which is well above the 200-day SMA at 4.550. Both moving averages are rising in yield, and this configuration favors higher yields. The yield on the 30-year moved above the 200-day SMA at the end of September after being below it since August 2004, and it continues to rise in yield almost daily. The monthly chart profile for 30-year yields favors higher yields, with a close in December cheaper than the five-month modified moving average at 4.598.

Will the coupon curve invert? ...