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Yields Soar Higher

This morning the yield on the 10 Year Treasury Note is trading higher by 5 basis points to 3.228%. This is a five month high for the yield. When the yields rise in the 10 Year Treasury it will generally effects mortgage rates. Recently mortgage rates have been at all time lows and this is because of the low yield on the 10 and 30 Year Treasuries.

The Federal Reserve Bank has been trying to keep yields artificially low with it's quantitative easing programs. This action by the Fed was meant to try and revive the depressed housing market. However, housing starts have remained at extremely low levels and new foreclosures remain at at all time highs. Higher yields on the 10 and 30 Year Treasuries should help to depress housing prices even further. Believe it or not this move in yields could actually be beneficial to the housing market. Since prices have been held up artificially and propped up by the Fed it has had very little effect on housing sales. If housing prices actually decline eventually investors will begin to purchase homes at bargain prices. Supply and demand is always the correct way for markets to function. Artificial propping just prolongs the inevitable.

When yields rise or increase the Proshares Short 20+ Year Treasury ETF(NYSE:TBF), and the Proshares Ultrashort 7-10 Year Treasury ETF(NYSE:PST will catch a bid. That is the case this morning with both of these ETF's moving higher. When the yields decline and bond prices move higher traders can play the iShares Barclays 20+ Year Treasury ETF(NYSE:TLT).

Nicholas Santiago
Chief Market Strategist