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I believe from a quick look at the pattern that the yarn is at the edge of two halves of the heel that need to come together. You're not going to continue with the old yarn, but just start knitting with a new strand to join the two halves. The old strand will hang there, waiting to be woven in later.
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"Trust the pattern!"
Time flies like an arrow, but fruit flies like a banana.
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IngridKH on Ravelry
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