INTEREST RATES ARE JUMPING

STRONG MANUFACTURING DATA HURTS BONDS... U.S. December manufacturing activity hit the highest level in 20 years. That good news is having a predictably bullish impact on stocks. However, it's hurting bonds. As a result, bond prices are down sharply -- and rates are jumping. Chart 1 shows the 10-year T-note yield jumping to the highest level in a month. Long-term rates have been moving sideways since surging last summer and the next move should be to the upside. The key chart number to watch is the November peak near 4.5%. Any close through that level would confirm an upturn in long-term rates.

Chart 1

BOND YIELDS TESTING DOWN TRENDLINE... The weekly bars in Chart 2 show the 10-year T-note yield challening a major down trendline drawn from the start of 2000. A move over the highs of last summer would break that trendline and put yields at the highest level in more than a year. If that were to occur, the next major target would be around the 5.5% level. The weekly MACD lines have already turned up.

Chart 2