BAC, TBT Benefit from Higher Yields

About 30 minutes ahead of the results of the 10 year Treasury Note Auction, rates on the long end continue to climb -- as seen here with the pattern exhibited by the ProShares UltraShort 20+ Year Treasury ETF (NYSE: TBT). If the TBT continues to strengthen, it implies higher yields, which should be a very favorable development for banks like Bank of America (BAC).

Let's notice that the TBT's (a picture of 20+ year longer-term bond yields) is pushing up through important 6-month resistance, which projects considerably higher and is another way of saying that the yield curve could get considerably steeper in the near future.

If that proves to be the case, then major money center banks that provide loans should be able to capture a much wider spread (profit-margin), especially if the Fed holds rates at zero for the foreseeable future, as Chairman Bernanke suggested on "60 Minutes" last Sunday evening.

Add in the income and payroll tax cuts, and perhaps loan demand will begin to surge, all of which could be extremely bullish for big banks like BAC. Finally, from a technical perspective, BAC appears to be about to thrust out of a 4-session bull flag formation in the aftermath of its recent upmove from 10.91 to 11.88, which should propel prices directly to test its Apr-Dec resistance line, now at 12.33.

If hurdled, this will trigger a powerful follow-through to test the prior rally peak at 12.76.