Right now rates are acting against their historical tendencies.  On average rates tend to have an inverse relationship with stocks, rates tend to increase with heightened inflation and rates tend to fall in the face of catastrophic geopolitical events.  While counter intuitive performance would tend to negate forecasting, there are known differences between the economy of today and that of our historical data.  The world is a much smaller place today.  Foreign investors have helped to mitigate many of the peeks and troughs of past markets.  With their commerce, currency fluctuations play a bigger role than in years past as well the economic prospectus of countries around the globe.  In the 1st quarter of '08, many of these forces will offset and cause conflicting projections of rates to come.

It appears that the US economic downturn is spreading to the rest of the world at the same pace by which the housing market crash spread through our economy.  Economies around the world are holding their Central Bank Rate steady while our Fed is cutting harshly.  This will cause the US dollar to weaken fearfully in upcoming months.  Such dollar weakness may cause major foreign investors to pull money out of US Securities.  If that occurs, rates could change drastically in a very short period of time.  While these macroeconomic forces try to push rates up, microeconomic forces will be trying to push rates down as domestic investors move toward safer investments.

This flight to quality is a reaction to a looming recession.  In the past few weeks, the media has gone from talking about recession as a small possibility to one of certainty and great depth.  I believe investors are following historical trends here in that they are overreacting to this news.  Right now, they are winning the battle to determine rate direction.  However, the technicals can't allow much more improvement. 

Already rates are trading at better levels than they have in 2 years.  They are up against tough technical resistance.  Not only do they have historical bests to fight against, but they have also strayed far away from the moving average and are now suspect to the leash affect.  That compounded with being overbought as per stochastics predicts a reversal.  I believe this reversal is a not just probable, but definite considering the yield of these notes.  Currently treasuries are offering less than 4%.  When looking at this from a currency perspective, there is almost no gain on the investment.  It's just not sustainable.

I believe rates will go up slowly over this quarter and may move erratically if dollar weakness forces Asia to pull their investments.  I'm calling for 3/8 ths of an increase.