QE2 finale, rallying stocks dull UST allure

On the Treasury’s side the improving risk back drop not to mention the market hitting the milestone that is the official end of QE2 has been more than enough to keep sellers in the ascendancy.  The 10yr chart looks very bullish (from a yield perspective).  A clear break of 3.21% (38.2% Fib level) would leave 3.40/43% as the most viable short-term target, so 18-20bps of upside.  Bond shorts should be able to hold out north of 3.10%, a swing through here would suggest we’ve found a top or are at least going to move into a range trade and see some squaring. Treasury bears should be reluctant to chase yields once higher levels are hit though (north of 3.40%) with the inflation outlook far from threatening and the Fed set to remain a good buyer as it looks to reinvest maturing paper/coupons it holds on its balance sheet not to mention what remains a steep yield curve.