Weak home sales, high gas prices cause distress
More than two weeks ago, in an apparently sustained and explosive rise, the 10-year T-note traded at 4.4 percent, and low-fee mortgages were 6 percent. Today, Treasurys reached 4.15 percent, and mortgages 5.75 percent.
There is no consensus explanation for the decline.
Yes, these are the quietest weeks of the year in the bond market (all the heavies are on Hampton beaches, kicking sand at lightweights), and weird stuff happens when nobody is home.
Nothing seems to have changed at the onward, upward Fed. Chicago Fed prez Moskow on Thursday delivered merciless remarks: "...Continue to reduce accommodation...core inflation higher..." and said 5 percent unemployment [where we are now] is "about as low as it can go on a sustained basis."
One predominant bond-market theory: high energy prices are more likely to slow the economy than produce inflation. So, new highs last week (oil $67/bbl, and all-time high natural gas at $9.50/mbtu) may be pressing down long-term rates. But...how is it possible for these prices not to produce some inflation?
Trading on Tuesday and Wednesday gave a very clear picture of the markets' mind. First thing Tuesday, news of weakness in sales of existing homes took down the stock market and brought happiness to bonds, long-term rates down. Then on Wednesday, rapid-fire: news that orders for durable goods had crashed 4.9 percent in July brought a big bond rally; then strength in sales of new homes reversed the rally and got the stock market excited; then energy prices hit their new highs, collapsing stocks and re-igniting the bond rally.
Who is in charge? What is the predominant force?
Read the entire Lou Barnes Inman News article at Citywide Services