Why 10-Year Notes Could Suffer a Dramatic Sell-Off

Traders work in the ten-year U.S. Treasury Note options pit at the Chicago Board of Trade in Chicago, Illinois, U.S.
Daniel Acker | Bloomberg | Getty Images

The 10-year Treasury note could soon suffer a dramatic downturn.

If you look at a chart of the ten year note prices, it is easy to see that they remain in a well-defined downtrend. To my eye, this suggests an objective of 130.00 (which would be a 2.17 percent yield).

Current buoyancy in the stock market continues to draw money out of safer assets, as investors seek greater returns. As equity markets advertise new record highs, this trend should continue. The biggest worry in bonds is that economic traction will accelerate, forcing the Federal Reserve's exit, and exaggerating an ongoing exit of safe money. This potential one-two punch could make for a dramatic move.

(Read More: QE to Push Gold, Silver Higher: Silver Wheaton CEO)

One more component of this trade is the worry that huge increases in domestic money supply could spark concerns of inflation. In this case, those 2 percent yields that are offered in the 10-Year would look very unappealing.

So how would I trade the 10-Year treasurys today?

I would consider putting on a short position at current levels, with a downside objective of 130.00, and a stop at 132.2.

Read on for Think the Bond Bull Is Dead—Think Again

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