30 Yr Treasury %

With the spring of 2013, the long bond yield began a lurching move up which defied over 40
years of close ties to cyclical economic factors. The chart of the long guy has industrial
commodities prices in the bottom panel. The market was sensitive as usual to the direction
and momentum of such prices until May of last year when yields surged while the industrials
continued to fade. $TYX

The talk of tapering the big Fed QE program was introduced by Bernanke last spring, and
the long Treas. yield took off as market players, anticipating economic growth sufficient to
warrant a taper and an eventual end to the Fed ZIRP policy reset the yield to begin to
accommodate  a return of the economy and monetary policy to a more normal relationship.

The Treasury yield has come down over 40 basis points this year to date as the market has
returned its attention once again to the cyclical fundamentals which typically govern the
direction of yields over the shorter term. Here, traders have noted a slow start to industrial
production in the States and sloppy sensitive materials pricing.

I am using a range this year for the bond of 3.20 - 3.80%. I have not changed my framework
yet for faster production growth and inflation for 2014  and am content to use a yield range
with less volatility than normal.

Bond yields have run up well ahead of the fundamentals but the eventual direction of cyclical
factors should support firmer yields at some point over 2014. In the interim, traders need to
exercise heavy due diligence as the yield at 3.51% is starting to get mildly on the low side
relative to its 200 day m/a.