The ten year Treasury Note is near a breakdown on the charts after another poor auction today. Here’s the technical picture:

The yield on the Ten Year Treasury has jumped dramatically over the last few days breaking out of the short term range.

On a longer term basis the yield is on the verge of breaking out of a wedge to the upside.

On an even longer term basis, yields would have to break above 5% to end the long term downtrend in yields. I expect that to happen eventually but not any time soon. For now I think a move to the 4.5 - 5% range is likely.

Rising yields means falling prices in the bond market. The 7-10 year IShares ETF is on the verge of breaking down - and I suspect it will. All those folks buying bond funds the last year are about to experience some pain. The market always acts to maximize the pain of the most people.

Stocks sold off this afternoon after making new highs for the move this morning. It is hard to separate various effects so I can’t say that the selloff in stocks was due to the selloff in bonds. The timing doesn’t line up; bonds started to sell off around 11 am and stocks didn’t really take a hit until around 1 pm. In addition, there were some comments by Trichet of the ECB concerning Greece which hit the Euro around the same time. Did stocks sell off because the Euro sold off or because bonds sold off? I don’t know but I do know that higher bond yields are not generally positive for stock valuations. Higher interest rates mean lower P/Es. On the other hand we see this coming out of every recession. The key is how fast earnings rise. If they rise fast enough, the market can still move higher even if the multiple put on the market is lower. If not, well, stock prices have to adjust. My guess is that the rise in yields for now will not be enough to derail the stock rally as long as yields stay below 5%.