In this environment it is hard to see 10-year Treasury yields rising above 4% this year. Thus, we see a 3.25% to 4% trading range. However, this does not make us want to change our allocation mix. We believe stocks have better short-and longer-term risk/reward characteristics versus bonds, so our bias is to further increase stock exposure. However, we think it does extend the current accommodative Fed pro-risk cycle (i.e., weak dollar, rising stock/commodity prices)

David Fuller's view There is always an informative graph at the end of The Weekly View and anyone interested in US house prices will find this week's inclusion particularly interesting.

I think The Weekly View is probably right about 10-year T-Bond yields (historic & weekly). After all, they are in the base formation stage of their next secular trend. Interestingly, the 28-year downtrend lost its consistency at the penultimate low, as so often happens with big trends, up or down. Veteran subscribers who have attended TCS may remember this point.

Consequently, action on the historic chart above looked like a potential base from mid-2003 into 2007, but it proved not to be because a vicious credit crunch pushed yields into a climactic acceleration towards 2%. I do not expect that low to be tested for the duration of my lifetime.

While bases often take longer to form than most people would like, as positions change hands, they often hit air pockets in terms of supply on completion. Therefore, extended ranging below 4% could be followed by a comparatively swift move to 5%, before another lengthy consolidation occurs.

Tactically, I would not own any bonds. However I am personally short 30-year Treasury bond futures (historic & weekly), and I include 10-year Treasury futures (historic & weekly), which are the inverse of the 10-year yields shown above.

I maintain that the Baby Steps sell-high-buy-low tactic works best when shorting T-Bonds in this environment. When I have not followed my own advice in trading Treasuries over the last few months it is usually because prices weakened sharply, as we last saw in November, so I took profits too early given the move that occurred. That will happen occasionally with the Baby Steps tactic but in a ranging topping out phase there will be more smaller, ranging moves than persistent, bigger trends.