Our Real Estate Blog

Weekly Preview - 3/28/2010

March 28th, 2010 11:51 AM by Lehel S.

Last Week; a bad one for the rate markets. Mortgage rates increased 12 basis points while the 10 yr note jumped 16 basis points in yield to end the week at 3.85%. After weeks of being contained in a narrow choppy range the rate markets broke out to the upside in terms of yield. We have warned for a month the bond and mortgage markets were emitting technical weakness, it took a trigger to break the rates higher; that trigger last week was the weakness in demand for Treasury's $118B of auctions. After nine months of very strong demand for US debt, investors are not as willing to buy unless US interest rates increase to match the increasing deficits being generated in this administration's spending binges. The passage and signing of the Obama health care bill added another layer of deficit spending, potential investors now want more incentive to keep funding the expanding US debt. Obama and the Democratic controlled Congress sold the plan as actually cutting the deficit, the CBO agreed that it would, the markets however are not buying it for a minute. There is no way to provide health insurance for an additional 30 mil without it costing huge sums over time (huge tax increases and equally huge increases in government doles). As the week ended the question left hanging is how high will rate go this year? First off, the rate markets have very likely seen their lowest levels for many years ahead unless the economy reverses to a double dip recession (and that appears unlikely now). As for higher rates; we are not expecting rates to move substantially higher from present levels this year, likely the 10 yr note will move up to 4.25% and mortgage rates increase another 50 basis points from current levels.
 
This Week; it is all about the March employment data on Friday. In the meantime the economic calendar has a few meaty data points to hurdle. Consumer confidence index on Tuesday, the Mar ISM manufacturing index on Thursday headline a calendar that has data each day this week. The March employment picture will change dramatically with a large increase in jobs, estimates are about 200K new jobs. How markets will take it will be key; most all of the job growth is a result of government hiring for the Census and a few weather related jobs. According to the estimates from the ADP folks the private sector will add 40K jobs in March. The bandwagon is getting full as more jump on the expanding view that the economy is going to continue to improve and new job creation will increase in the months ahead; the equity markets are climbing with many that believe they have missed out,now trying to crawl aboard. The job market will most likely be soft the remainder of this year, but as long as job losses work lower traders and newbie investors will keep the momentum going. This week there is no Treasury borrowing, but it cranks up again the following week with 3 yr, 10 yr and 30 yr auctions as well as a 10 yr inflation-indexed note for sale (about $80B). The debt markets will continue to monitor the developments in Europe with Greece, Portugal, Spain and Italy struggling to keep defaults from actually developing; sovereign debt failures would infect most bond markets including the US. This week expect continued volatility in the interest rate markets.
Posted in:General
Posted by Lehel S. on March 28th, 2010 11:51 AM

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