Now that everyone knows a tapering of its current QE-3 program ( bond buying) is coming, how much can bond yields on the 10-year U.S. Treasury Note actually fall? Currently, the of the 10-year U.S. bond yield ($TNX) is showing very good support around the 2.63 percent level. There is also more chart support around the 2.45 percent level. So either way, bond yields are not going to decline all that much unless there a major economic disaster takes place. The odds of an economic disaster occurring in 2013 is very unlikely, however 2014 is another story.
Higher bond yields are telling us two things:
First, higher bond yields are telling us that the must begin to cut back on their current $85 billion a month QE-3 program. If they do not, there could be major problems or repercussions in the future. The bond market is smarter than the stock market since the world is built on debt. So when the bond market talks, traders and investors better listen.
Second, easy money has almost always led to an economic boom; but higher rates or a tapering could certainly cause the economy to slow down. Many economists will argue that currently this economic recovery has been one of the weakest on record considering the has pumped about $4 trillion into the system. The one obvious positive effect from all of the easy money has been the new all time highs in the stock market. Either way, the chart of the bond yields is starting to certainly paint a different picture for the future. The next FOMC meeting will take place next week, this is when QE-3 tapering could be announced.