We have the 10 year pushing right up to the 3% area again, and mortgage rates are now in the mid 4% range. This is important as this IS the only thing that matters.
The whole purpose of the FED doing QE is to keep the banks from imploding. All the other chatter is to simply keep you confused. The employment report is a house of mirrors, and it is simply a tool to push asset prices around where the TPTB need them pushed.
The banks need every dime of QE, for a very long time. The banks are not lending because there is risk of default, so the FED must give them a free spread that they then lever up and buy ES future contracts and sell volatility contracts and generate profits. At the same time the plan is to lift the price of housing so that others can buy them from the banks with the lowest possible loss and clean up their balance sheet in the process.
Well rising interest rates throws a grenade into this party, as housing simply dies unless prices start coming down again to produce a yield for investors. Falling housing and stock prices, rising delinquencies, or falling sales will have a knock on effect economically and politically, and will destroy bank profitability. Plus the Fed's other master the Government is not in a position to borrow at a higher average rate, and for 2014 the pols will want to spend to curry favor with voters.
This will not be allowed to happen.
But, is there a way for the Fed to taper and have the TNX-X fall? 3% yield on ten year paper to Japan looks awfully tempting. They borrow at zero, clip coupons at 3% and get to devalue their currency. The dollar stays stable, energy pushes back down, and rates drift down again. They could easily soak up any difference.
If not Japan, the Fed will need to ramp up QE, not reduce it to maintain status quo. The high costs more exponentially everyday.
It is unfathomable to me that the Fed will be allowed to let the bond market rise, in an election year, with the deflationary forces of healthcare taxes, and higher energy costs, and if no action higher interest costs.