Global equity markets continue their wild ride as major daily swings with a bias to the downside have become the norm. Long-dated bonds have benefited from this volatility as the 10-year Treasury yield has dipped to 2.90% from a high just a short while ago above 3.24%. There are several reasons for the drop in interest rates, but the main negative themes continue to be U.S.-China trade and tariff tensions, a partial inversion of the yield curve, fears of a slowing global economy, the end of QE in Europe, ongoing QT in the U.S., and European political issues including Brexit as well as French protests over rising fuel costs.
Economic data was light this week with only one big headline report, the consumer price index (CPI), which showed that inflation is currently contained, which is positive for bond yields.
However, with both a slowing housing market across the U.S. and what seems to be a general slowdown of global economy, relatively low rates are needed to continue to spur the economy. With that in mind, we will be carefully reading Fed comments next week. We do expect a .25% increase in the overnight banking rates to be accompanied by very dovish commentary. Hopefully, The Fed’s comments will provide a much-needed tonic for the current market negativity.
Lenders continue to price aggressively as the need for business outweighs the need for yield. We continue to see attractive rates across the lending spectrum which is a good thing for new home buyers. With rates near 2.90%, we are agnostic as to the next direction in interest rates and are very curious to read the comments from the Fed next week.