Good Friday AM,
Well, at least I was brief yesterday…
The 10-year is improving at .63%. If you remember just a few weeks ago we were in the same place hoping the 10-yr broke below .58%. That is still the line in the sand to watch. Breaking below that would be very bullish for rates. For now we are in a stable channel with not much to the up or downside. Mortgage bonds are virtually flat have not moved much all week. The range is tight which can be good and makes for an easier breakout on the high (higher price = lower rates), which looks to be where we are heading. The news today was good for our industry but not necessarily bond friendly. Existing home sales set a record and it is stunning to think that we are in the worst recession since the great depression and housing is breaking new records. Prices are rising more because of lack of supply, than too much demand, and this is not always sustainable.
Great excerpt from Matt Graham with an awesome graph:
In other words, rates are low. After a little scare last week, they’ve trended lower again this week. All of this is fairly logical–logical enough that everyone else can see it too. The implication is that we need to constantly be asking ourselves “ok, was that it? Was that the final push toward lower rates in the bigger picture?”
When the time comes to get really serious about those questions, you’ll know it. It will look very different than last week’s technical correction. Selling will be sustained. It will be bigger. And it won’t give way to nice little bounces into nice little trend channels like the one we’ve seen this week.
So what am I telling you to do? Enjoy the low rates we have today. Yes, they could go even lower by the end of the year (and over even longer time horizons, we’re nearly certain to see new record lows). But for now we’re feeling out a relatively broad sideways range and waiting for bulls or bears to try to take the lead. The emergence and confirmation of this week’s rally trend simply means the broader sideways range remains intact.
A little insight from the WSJ on why there is a cavernous disconnect between the equity markets and the country struggling through this recession.
The percentage of Americans who own stock, either directly or through retirement or mutual funds, is falling. It most recently stood at about 55%, according to an April Gallup poll, down from a high of 67% in 2002. The S&P 500, the benchmark U.S. stock index, has surged more than 50% since bottoming in March and is back at record levels, largely thanks to the unprecedented stimulus programs enacted by the Federal Reserve and Congress. “What’s going on on Wall Street is so far removed from what’s going on Main Street, it doesn’t matter,” Ms. Biesecker said. Stock ownership is increasingly concentrated among a sliver of the population. The top 10% of Americans by wealth owned 87% of all stock outstanding in the first quarter, according to data from the Federal Reserve. That share has grown over the past decade, from 82.4% in 2009. The stock market has surged over that period, with the S&P 500 more than quadrupling from its low during the financial crisis in March 2009.
Please remain safe and stay healthy, enjoy the weekend and make today great!