Good Friday AM from your Hometown Lender,
Bonds had a great day yesterday, rallying back from a rough Wednesday, and the party looked as if it would continue this morning. It has fizzled a bit today, but the silver lining is we are holding on to yesterday’s gains. It has put us back in the previous lower yield channel from late last week which is always a positive. The positive sentiment for bonds seems solid for the moment (I think it is more of a technical trade which I like and trust more than emotional trades). Let’s hope the 10-yr gets down to 4.35% and we can revisit the next direction as that has been a tough line in the sand to crack and hold.
The 10-yr is at 4.44% today.
There’s not much in the way of data today, housing starts and building permits fell this morning (but that doesn’t affect rates), and consumer sentiment data was weaker than the weak expectations. That does not bode well for the economy as I believe the consumer is the first to know what is going on with their finances (the data reports are always lagging) and with the drop off in sentiment, came increased inflation expectations. Next week is dry regarding economic data, lots of Fed members out speaking but only Thursday’s PMI data to watch. Friday markets will close early (2pm ET) for Memorial Day weekend.
To add to the rate debate:
The WSJ brought back a topic that we haven’t touched on recently. Pick your poison.. Higher rates or weaker dollar.. or both. I don’t agree that money will continue to leave the US but we will see.
Investors are becoming less willing to fund the U.S. twin deficit, and this poses a major problem for the dollar and potentially U.S. Treasurys, Deutsche Bank Forex analyst George Sarvelos says in a note. For foreigners to continue financing U.S. debt, the non-dollar price of Treasurys needs to fall either via currency depreciation or a fall in bond prices, he says. Lower bond prices would worsen U.S. debt dynamics so that isn’t sustainable. That leaves dollar weakness as the only solution to this problem. “That will effectively lead to a capital write down of foreign holdings of U.S. assets and an improvement in America’s net external asset position, making it easier to finance new issuance again.
Stay safe, enjoy the weekend, and first, make today great!