The Long Bond has been frustrating. On one hand, it has been a modest player with all of the hot speculations. But it couldn't accomplish sufficient energy for a top.

We have been long and last week we were looking for a "pop" as the street finally noticed that commodities were weakening. Where plunging energy prices had little influence, the slide in base metal prices did the trick.

The last high in yields was 5.05% for the bond and 4.40% for the 10-year. That was on December 2, which compares with our base metal price index rallying to 978 on November 30 - two days earlier. This is accompanied by weakening retail sales with particularly weak car sales. Rosenberg, at ML, notes that dealer inventories are growing at a "two-standard deviation rate".

It's a relief to see the rally and the next obvious target would be the previous lows at 4.75% and 3.97%.

There could be some choppiness getting there.

On the very long term, our theme remains that weakening industrial commodities will signal diminishing pricing power. This will result in a bear market in earnings and the always dreadful inability to service debt.

A growing revulsion for lower grade issues (oops - almost used the term securities) could begin in the first quarter. Eventually this could become serious enough to, stage by stage, pull down the price of most classes of bonds.

For treasuries, the near term is positive but the long term is not pretty.

Credit Spreads: The table of "spikes" places the action in spreads in perspective and it is updated:

First of all, it is essential to note that after the October, 2002 calamity the high-yield spread narrowed from 923 bps to only 194 bps. This is a huge move and, despite extremely bullish sentiment, the action in the spreads could be spiking by running out of momentum at the previous excess.

As with spikes earlier in the year, the failures have been sequential. This set began with lumber on August 23, nickel on October 8, and crude oil on October 18. Last week, we ran the sequence and observed that silver and credit spreads were still unscathed.

Silver has been hit, which leaves spreads and the stock market the next vulnerable games.

Dollar Index: After a series of "capitulation" days, one of the requirements for the "buy" is an uptick in momentum. As of Wednesday, we have this. The last such signal occurred in January at 84.5 and the recovery was to 92.

What we would like to see now is stability, followed by a quiet recovery with some excitement eventually driving the dollar index to 90.