Where US Treasury yield is heading to?

US Treasury yield was artificially low due to risk aversion from European crisis and Fed's intention to suppress the long end of the curve. The market has been pricing in 80-90% probability of more QE or OT from the Fed since Jan 2012.

However, after two rounds of LTRO liquidity injection, the banking stresses in the Eurozone have diminished. Especially with the orderly default of Greece, sentiment has been lifted across the globe. Combined with ongoing supportive growth data, particularly from the US, all risk assets are rallying. The policy-engineered Treasury yields may not be able to sustain the decouple from economic reality. A normalization repricing is currently taking place in the market. Yields across the curve seem to wake up and Fed fund futures is pricing a hike from Q4 2013, one year before the Fed's time frame.

The technical pictures of US Treasury yields show tentative signs of a break out to the upside. 10 year Note retraced back exactly towards the 61.8% Fibonacci retracement level. A touch below the 50% retracement level is the first sign of the end of the rebouce. Today, we witnessed the market's determined sell off of T note. A double top and a lower low formation with extreme volume surge suggest lower touch ahead. In terms of the 10 year yield, it has rallied above 200 day MA, then retested and now rally above it again. The momentum of RSI coupled with the positive MACD formation and upward sloping 50 day MA is shouting higher yield ahead. If it can close above 2.40% for a couple of days, it opens up the possibility of a test of the 2.90%--3.00% area, where it melt down last year.

Same picture can be found in the 30 year Bond, which has an even lower rebound force.

Moreover, gold and USD index both confirm higher yields ahead. Gold is close to test the low formed on Mar 22nd. If penetrated, a test of 1600 level is very likely, which will trigger 10 year yield to shoot up above 2.40%. USD is forming an inverted head and shoulder, with key level of 80 not far away. Close above 82 suggests powerful move up in USD index, which illustrate the currency market's expectation of higher US yields and better economic data.

April is historically the best month for Treasury yields. With such an artificial low yield and inter market pictures illustrated above, short Treasuries seem to be a safe bet in the short run.