Are There Storm Clouds in the Bond Market?

You may not follow the Treasury Bond Market. It would behoove any Investor to watch the 10yr Treasury for the rest of 2012 (it's closely tied to mortgage rates). Currently, the Bond Market is in the midst of a sell off. That pushes bond yields higher. Right now the yield on the 10yr T is just below 2.0%. With inflation pegged at 2.3% +/-,the 10 year sill has a REAL Negative Yield. (2.0-2.3= <0.3>%.

Now, something is out of line. Remember the fed has promised us artificially low interest rates until sometime in 2014 (Operation Twist).But, if you buy the MSM propaganda, that ALL of the economy is getting better. In that instance, if all is well, historically we no longer will need artificially low interest rates.  
To carry this from point A to point B and beyond, Long term treasury bond buyers no longer need the risk free aspect of the treasury bond. Why, just look at the equity market, 13,000+. You are witnessing the unwind of the feds operation twist. The last thing the fed was counting on.
So what is going on here? RDQ Economics, a bond market analysts, predict that the 10yr T will rise to a yield of 3.75% by the end of 2012. If the 10yr T rates just rise 1% to yield 3%, that could mean an additional $100 billion in interest expense on the National Debt. What happens to Mortgage Interest Rates?Well, they sure won't go down. An increased interest rate yield in the "risk free" assets will only increase property  purchase costs and the cost to re-fi investment property.
But, before that happens, the fed will call all hands on deck,  crank up QE3 and print dollars until they run out of ink.At this point I'm not sure that will help.
What say you?
 
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