Goncalves said a QE announcement could actually drive yields higher, since the expectations for deflation diminish. The 10-year yield rose after Federal Reserve QE announcements, he said. Bond yields move opposite prices.
Yields have defied expectations all year, with rates at the long end of the curve near the lower end of the 2014 range in recent sessions. The 10-year Wednesday was at 2.26 percent, just below 2.28 percent, a support level traders have been watching.

It appears to be the world’s easiest trade: Taking a bullish position on stocks for the year’s last five trading sessions. Over the entire history of the S&P 500, not only has the index tended to rise over the last days of a year, but it has tended to do so with greater consistency.

Going back to 1928, the S&P 500 has returned 0.14 percent in the average five-day period. But in the last five days of the year, the S&P has enjoyed an average return of 1.19 percent, according to Carter Worth, Sterne Agee’s chief market technician. (Technically, the S&P 500 wasn’t created until 1957, but historical data from the earlier 90-stock S&P index is used to extrapolate earlier S&P 500 performance.)

And while the standard deviation of the S&P’s average five-day return is 2.64 percent, the standard deviation around the average gain in the waning days of the year is only 1.87 percent, Worth found. That tells us that we can expect less variation around the average—which is logical, since light trading is to be expected.

Worth has generally maintained a bearish outlook on the overall market. But when it comes to the last few days of the year, “the odds are high that they play out well,” he said in a recent note to clients. “There is not only a higher-than-average return over the last five days, but there is less variability around the average.”

Next up: 2,100 on the S&P 500

Stocks have been getting a boost from Santa, but not bonds.

As bonds sold off, the 10-year yield rose to 2.28 percent Wednesday, a key technical area traders have been watching. Traders await the $29 billion 7-year auction at 11:30 a.m. ET.

“The usual risk-on mood during the holidays may keep some investors away,” wrote George Goncalves, head of rate strategy at Nomura. “If we do not see support come out for the auction, there is a risk that rates keep drifting up into year-end as dip buyers might try to optimize entry points at the start of a new calendar year versus now.”

The stock market closes at 1 p.m. for the Christmas holiday, while bonds close at 2 p.m.
Stock futures were pointing higher Wednesday, after the Dow broke through and closed above 18,000 for the first time Tuesday. The S&P 500 closed at a record 2,082, just 18 points shy of 2,100.

“The Santa rally already started. It (S&P) moved 5 percent from last Thursday. Maybe it will digest a little bit in the next few days,” said Scott Redler, partner with T3Live.com. “With low volume, digestion would be nice because that would reset the market for a potential move above 2,100 when the New Year starts.”

As stocks rallied Tuesday, bonds sold off. Third-quarter GDP growth was revised to a stunning 5 percent, and November consumer spending was up a strong 0.6 percent. But durable goods surprised to the downside, and traders said the markets were more influenced by year-end positioning than any news.