10 year yields jump

The Fed announced that they were "prepared to buy Treasuries" and it appears the market wants to test how serious the Fed is. In the words of Across the Curve, "tarders are now enganged in a game of financial chicken with Federal Reserve as traders attempt to force the Fed's hand." And with that, 10 year yield jumped today.

It is unclear as to whether this is supportive of the broader stock market. Have yields jumped because of excessive supply? Or are increased yields indication of a broader appetite for risk (and yield)?

Signs of improvement

While the bad news has been relentless these past few weeks, there have been signs that a recovery is just around the corner. Numerous correlational indicators have improved markedly since New Years, even in the face of the weakness in equities these past two weeks. These indicators include:

A huge decline in the A2/P2 spreads in 2009 (Calculated Risk) indicating that credit is beginning to flow again;

An increase in M3 Money Supply, indicating that the Fed's efforts to reinflate are getting traction;

An increase in 10 year Treasury yields, indicating an increase in risk appetite;

Bullish moves in silver and crude, silver in particular has been tightly correlated to SPX;

A weekly drop in the cash holdings of money market mutual funds, which might indicate that cash on the sidelines is coming back into the markets;

Continued improvement in the BDI, suggesting that global trade is starting to recover;

And strength in Markit's ABX and CMBX indices, again measures that are correlated to SPX.

All this is bullish for equities, although some indicators are becoming overbought (like TRIN from Matt Trivisonno)

Signs of improvement - 10 year Treasury yields

Treasury yields, after plummeting through November and December, have been moving higher for the past month. The move up in yields this past week in the face of continued weakness in equities, suggests a slow increase in risk appetite.

Mind you, the increase in Treasury yields was also driven by in increase in issuance by the Treasury department, as well as Geitner's "China Manipulates" comments. Still, as the chart below shows, 10 year yields are strongly correlated with SPX, so last week's rise is bullish.