Market Commentary 2/21/20

The 30-year U.S. Treasury bond hit an all-time low on Friday as investors fled riskier assets and sought the safe haven of U.S. government-guaranteed debt. The causes for concern were weak overseas manufacturing data and ongoing uncertainty in handicapping how the coronavirus (now named “COVID-19”) will affect economic growth in the coming months. Should this virus become more of a problem, interest rates will plunge. For now, no one knows how this virus will evolve, but to date, it appears to not be as deadly as biologically similar infections.

Earlier in the week, bond yields held firm even after hotter than expected PPI and Core PPI inflation readings.   

Home buying season should be a good one with interest rates remaining low for the foreseeable future. Supply and affordability will be the bigger issue, especially in the more expensive coastal markets. Building permits surged but housing starts fell which should put even more pressure on short term supply concerns. 

With rates near historic all-time lows, we continue to believe that locking-in is the right course of action. The wild card is the potential threat that the coronavirus will have on global productivity. For now, that risk is low, but it may change. If the virus becomes an international pandemic, expect the U.S. 10-year Treasury to touch 1% or lower.  


Market Commentary 2/14/20

This weekend marks the unofficial start of the spring home-buying season. The combination of low-interest rates and overall good economic data out of the U.S. supports the belief that home sales and home-related activities will be robust. With the Fed staying on hold for the moment, and, with the odds favoring a rate reduction, the cost of financing debt is very attractive.

One concern remains home affordability. How far borrowers are willing to stretch may hurt higher end coastal markets. However, the demand for a luxury home product is strong (Jeff Bezos just purchased a $165 million home here in Los Angeles).

The 30-year Treasury auction this week was met with strong demand even with the offering being consummated with the lowest yield ever offered.  With $13 trillion negative rates globally, the U.S. bond market is one of the few places where high-quality bonds change hands with positive yields.  This phenomenon will cap how high-interest rates can go up in the U.S. With the 10-year near 1.500%, locking in at these levels is prudent, but interest rates may go lower. The uncertainty of the coronavirus could push rates higher or lower depending on how the virus spreads.