This is an unusually large short-term percentage move in probably the most influential market on earth. My high-conviction recommendation to short the bonds (ie in expectation of higher yields) remains valid, with my ultimate yield target of 3.5% intact.
The rise in ten-year government bond yields to 3.5% appears so obvious that I continue to question what I might be missing. Why, for example, would any investor hold such an asset class? The one thing that may cause a sharp fall in its yield, and a rise in price, is ironically the fact that we are all of this same opinion. Global hedge funds are probably maximum short of the bond, and the likelihood is, therefore, that massive short-covering might emerge following any confirmation from the Federal Reserve that it will begin tapering its quantitative easing (QE) programme . Indeed, with so much press comment being provided by members of the Fed committee, this softening-up process must surely have priced in the actual event. Certainly that would be the intention of the Federal Reserve.
Nonetheless, the fall in US ten-year Treasury yields, seeded in the one-day stock market crash in 1987, has come to an end. I expect yields will stabilise around the 3.5% resistance level, and the global macro-economics will adjust accordingly. This may well coincide with my expected upside targets on the major global equity markets.
Recommendation: stay short. Target yield 3.5%.