Long Treasury Yield % -- Caution Flag

The long T yield % rose up to levels in 2013 that made little fundamental sense. There has
been a substantial and warranted retracement this year until just recently in my view. $TYX

The chart shows a clear and inviting downtrend in the long T % since the outset of the year.
But, some reservations are in order. The yield has gone from a large premium to the 200 day
m/a to a growing discount. This signals a move from a bond which was strongly oversold in
2013 to one which is increasingly overbought. The yield on the bond is now below 3.50%
and long term bond players should not be carrying net long positions at this level. Because
I still hold to the view that the US economy should do quite a bit better over the course of
2014, a cyclical uptrend in the yield dating back to the summer of 2012 when The Fed put
QE 3 into play is appropriate and is being tested now following a period when  the yield
was badly overextended to the upside. Lastly, as the bottom panel of the chart shows, sensitive
materials prices have turned up and this usually adds some upside pressure to the long bond
yield.

I may change my mind out ahead about whether the powerful liquidity cycle still underway
will fail to boost the economy, but for now I think a good range for the long T should be
about 3.40 - 3.90 %.