Look, for months the Fed has been trying to have its cake and eat it too.  Every other day it seems we are treated to another pronouncement from a U.S. central banker which is intended to keep the market guessing about its intentions to end the bond-buying program known as quantitative easing.  All of this is designed to keep money scared and moving from equities to bonds to the Euro-zone and back again all the while providing timing cover to bash the price of gold and keep everyone in the box and bond prices from moving up too far.  So, today Bernanke testifies before Congress tells the world that easing is not going to end anytime soon but that it will be appropriate at some point in the future.

Bond prices rise on the idea that the Fed will continue to be a buyer, but the reality is that this is nothing more than currency debasement and because of that investors should demand higher returns from their bonds in order to offset inflation, because like it or not, some of this printed money is making it into circulation.  Go look at M1 if you don’t believe me.  Finally, after the Chairman was done with his soft-shoe two-step the bond market called his bluff and pushed yields on the 30 year bond back over 3.2% which the Fed had been actively defending for days.  Further weakness in the long end of the yield curve to end the week — especially above 3.26% — would be a bearish signal that the sell-off in bonds is gathering momentum after the Fed took a few weeks off from heavy bond buying to trash the price of gold.

The longer the economy operates in this kind of carry risk, the more accustomed to it it becomes and it will take a smaller rise in yields to begin creating cascading defaults.  Bernanke knows this which is why yields are being pushed as low as they have been.