As traders have been selling for 5 days in a row (including today), 10 year notes, bonds, and mortgage backs continue to take fire.  The root of this evil started with QE2 and the market’s expectation that it would lead to uncontrollable inflation.  The Chinese joined the party, yelling at the G-20 meeting about the U.S. letting our dollar fall to help our economy and commoditizing our debt (QE2).  This did not help relations with our global trading partners.

Currency wars is what this is all about and the Fed is getting exactly what it hoped for, consumer expectations of rising inflation to shut the door on deflation.  This was evidenced in last week’s Michigan Sentiment Survey.  With QE2 priced in “before” it happened and the negative connotations mentioned above, treasuries have continued to be slaughtered, sending credit costs higher, doing nothing to stimulate the economy.  Look for the Fed to try and talk rates back down.

So far today, that hasn’t been the case as Uncle Sam bought about 8 billion in paper with little to no effect.  10’s are trading at 2.85%, down 22/32’s on the day.  Mortgage backs are off 9/32’s and stocks are up 65 on the big board.

Retail Sales hit the tape up 1.2%, a touch better than expected.  Stripping out autos, the index was plus .4%.  Business inventories/Sales were also released, up .9% and up .5% respectfully.  The week ahead is a doozy, starting with inflation numbers (PPI and CPI) over the next two days.

Technically, the selling today has taken the chart below the October lows (high yield mark) and then rebounded ever so slightly.  Bearish readings and Trend Intensity are evident on every chart time frame.  The best we can hope for is that the October low will hold (good so far) and the market will begin to repair itself.  Odds are good for a rally based on oversold conditions along.  Just the same, this is not a market to mess with.  Until there is a sea change in the way traders view QE2, this version of Sonny and Cher’s “the beat goes on” will continue.