Rates worsened a bit today as mortgage bonds fail to sustain yesterday’s gains and Treasuries lose ground after more positive economic data was released today. The bond market views positive economic data leading to inflationary pressure which destroys the value of bonds. Jobless claims decreased, business activity increased and pending home sales rose. Origination is light and trading conditions remain thin and choppy as 2010 come to a close. Stock markets are negative this morning but that can hardly take away the massive gains made this year. Looks like the little guys are piling back into equities hoping not to miss the rally … that they missed … and insiders are beginning to pare back their exposure to equities … so look out for a correction.
Let’s hope a bid reemerges (increased demand) for US Treasury bonds in 2011 to help get the housing market back on its feet. I guess hope springs eternal for a housing market rebound but the only way to turn it around is for unemployment to dramatically fall. Given our governments undeclared war on capital formation through high taxes on multiple levels and its war on business through confiscatory taxes and massive regulation, business will be less likely to take the risks required to grow and hire people.
As for renewed demand pushing Treasuries prices up and yields down…don’t hold your breath. The handwriting is on the wall and it appears, despite the destructive actions of the Federal Reserve and its massive QE1,2,3 etc. etc. money creating schemes, that interest rates will continue to rise as bonds get pinched by inflationary pressures created the Fed and the increasing threats of bond defaults. Keep your eye out in 2011 for increased chatter about Municipal Bond defaults and outright Muni Bond defaults and cities being forced into bankruptcy. The cities and the states are strapped with bond debt used to finance everything from Taj Mahal style schools (remember the $500 million dollar high school in California?) all for the children of course (not a union payoff?) to lavish retirement benefits for city and state workers. What is conspicuously missing from the massive increase in city and state bond issuances is economically stimulating and efficiency increasing infrastructure development projects. Unfortunately most of the proceed from massive city and state bond issuances of the last two decades was used to pad budget shortfalls and for immediate consumption and not economy facilitation infrastructure projects like bridges, ports, dams, nuclear power plants, super modern power grids and super highways … all of which lower the costs and increase efficiencies for business which in turn facilitates economic development and job creation in the private sector.
In the news today… For more detail, click on the Market-Headlines attachment
- Jobless Claims in U.S. Decreased to (only) 388,000 Last Week (we need to produce 150,000 just to break even)
- Business Index in U.S. Increases to Two-Decade High (especially with the cash flush “too big to fail”… go figure)
- Pending Sales of U.S. Previously Owned Homes Rise (just wait for those higher rates to work in)
- Mortgage Rates for U.S. Loans Climb to 7-Month High (how’s that QE2 working out for ya?)
Suggested Reading for Today… Who Moved My Cheese?: An Amazing Way to Deal with Change in Your Work and in Your Life - Spencer Johnson and Kenneth Blanchard
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