The window on historic low rates may be closing

The move which seems to hurt the most people is the ever higher yield across all markets. Unlike the crisis in 2008 when yields collapsed in expectations of accommodative policy the rates are now testing top side recent range seen.

What is behind this?  As always there are several factors in play but here a few:

• The main driver to me has been the 'failed' QE2 - where all the benefits  (lower rates) was created ahead of the actual event - and by moving to a panic QE2 (at least relative to stable macro picture) meant market lost faith in FOMC.
• Add to this the impossible political stalemate in Congress (with no incentive for anyone to structurally change the US economy) and market is getting feeling the next two years are LOST in terms of addressing crisis
• Reaction function: By going ahead with QE2 the US, almost as per usual, decided to operate without any consideration to its partners. Bottom line: QE2 will force China to hike rates even more due to commodity prices exploding......
• Euro Debt crisis: EU is again at it, Germany trying to maintain its AAA status with credit market, but ultimately by bailing out country after country even Germany will have to pay higher rates on their debt as they dilute themselves....
• Market positioning - clearly everyone and his dog was long 10 years US awaiting the 'free gift' from FED and Treasury.

I'm concerned as the fixed income does not seem to back down, even the North Korea skirmish only managed to move bonds up to technical correction levels, which to me indicate, like it or not, we are on the edge on Crisis 2.0 - many will claim I'm an idiot but market never lies....

We need two or three confirmation for this:

1. USDJPY needs to break recent range - and break to downside (82.80 my level)
2. S&P needs to break 1150.00 (1195 now)
3. 10 years breaking the tough resistance 3.00/3.03

Stock market is benefiting from exit in fixed income as investor reverse out of bonds into stocks, but if rates break the resistance levels in the charts above we need to get prepared for November having been the macro turning event for this move post March 2009 - but it's still early days and the resistance in rates is formidable with no less than three key levels around here 2.90 to 3.15, so maybe yet again we will do nothing except for delaying the ultimate pain.

Happy Thanks Giving to all my friends in the US.

Steen