May-25-blog

Market Commentary 5/24/19

Bond yields dropped precipitously and global stocks were volatile as tensions rose over the U.S.-China trade talks, which has dampened investor expectations of a near-term resolution between the world’s two biggest economies.  Further pushing yields lower was the ongoing Brexit non-resolution which has forced Theresa May’s resignation. Finally, Europe continues to stall under a huge debt burden and the unintended consequences of negative bond yields which have done little to spur economic growth.

The U.S. economy remains strong, so part of the low-interest rate story has to do with how low bond yields are across the pond and in Japan. Many European bonds trade at or below zero. With unemployment near a 50-year low, tame inflation readings are the other major story that has placed a ceiling on domestic yields. Bonds traded this past week at a near a 17-month low.

Housing has rebounded from a poor 4th quarter, but high prices continue to weigh on prospective buying decisions. Locally, our own real estate market has seen a strong increase in applications as the busy season is upon us and interest rates on multiple product types are very attractive. 

With the 3-month 10-year Treasury curve inverting, we will continue to monitor the bond market closely for recession clues. A prolonged inversion of short-term against long-term yields is a respected indicator of a looming recession. However, for the moment, we believe the U.S. economy is performing well and interest rates this low should be locked-in at these levels; the 10-year Treasury is trading under 2.30% as of Thursday, May 23, 2019. 

Feb-22-blog

Market Commentary 2/22/19

U.S. Treasuries and major equity markets continue to trade benevolently as investors adjust to a more a “risk on” environment. A December wash-out in stocks and subsequent dovish commentary out of the Fed stoked this move upward in stocks and a move downward in interest rates.  For the moment, Mr. Market has moved aside global growth concerns, some weak earnings guidance from analysts, and the fear of Brexit and Italian bond defaults.  Positive talks with China are encouraging and have helped ease the markets.  No less important is the fact that low interest rates spur risk-taking in equities and have arrived just in time for the spring buying season.  Refinance volume has also improved amongst other debt-related activities.

The Fed pausing on their rate hike forecasts does raise some concerns given the supposed strength of our economy and near all-time highs in the stock market.  Historically, the Fed mandate was to watch over employment and inflation, but it is clear that supporting equity and asset valuations is no less important in today’s world. Low rates have probably distorted true price discovery and the Fed will need to be very careful about how to move rates as December’s vicious stock market decline is evidence of what one misstep can bring on.

Next week will be an important week for Fed-related news.  We believe they will be very careful with policy statements and promote their “patience” policy to Congress. 

We are grateful for the low interest rates and continue to advise clients to be cautious with respect to floating rates.  One quickly forgets how fast stocks and bonds can move against you should the market have a change of heart.  A 10-year U.S. Treasury bond trading under 2.700% was not forecasted by many this time last year. 

Market Commentary 1/25/19

Market Commentary 1/25/19

Government, investment grade, and mortgage rates remain low amidst uncertainty over the government shutdown, China trade negotiations, the Brexit outcome, and overall concern about a slowing global economy.   As stated previously, Wall Street likes gridlock so it is no surprise to see U.S. equities rise in the face of a government shut down.  Furthermore, the Fed has been fairly clear that we may be closer to the neutral rate of interest than previously thought, as well as slowing the reduction of the balance sheet which has been draining liquidity out of the financial system. These measures have served as a boon to equities.

Low rates have helped mortgage applications. Home sales have slowed which has forced some re-pricing that has benefited many who have waited for a break in the upward trend in housing prices.

With interest rates on the 10-year Treasury note under 2.800%, we remain cautious and are biased toward locking in interest rates at these levels.  Should the government open and should we see more positive discussions on the China trade negotiations, we believe rates may move higher and possibly, very quickly.

Jan-18-blog 2019

Market Commentary 1/18/19

The effects of the partial government shutdown

Interest rates are drifting higher as the damage caused by last month’s brutal volatility washes out and the focus returns back to earnings, the economy, global trade, and inflation.  

We will learn more about earnings in the coming weeks, but it has been a mixed bag so far. With respect to the economy, the U.S. economy remains strong, but across the pond, Europe’s economy appears to be slowing along with China. The global economic slowdown is a big concern and is partly responsible for the drop in interest rates that took hold late last year and continued into 2019. Counteractively, a slowing economy could be good for stocks as it will keep the Fed from raising rates.  

Secondly, the effects of the government shutdown (if it continues), will become a drag on future confidence readings and overall GDP if it’s not resolved soon. However, keep in mind, Wall Street loves political gridlock and the surge in the stock market is evidence of this.

Thirdly, there are rumors that the U.S. and China are working together on a trade deal. Stocks are higher on this news and bonds have sold off a touch as the risk of an all-out trade war subside.

Finally, inflation remains in check even with full employment here in the U.S. This is a big positive for bond yields along with the Fed clearly stating their intention to remain patient.  

With the recent upward trend in stocks, and, the 10-year Treasury Bond trading below 2.80% yield, we remain biased toward locking-in interest rates given recent events.   

Dec-28-blog

Market Commentary 12/28/18

After a gloomy start to the week, U.S. equities rallied significantly to the delight of traders and investors. While the equity markets are poised to close lower for the year, a strong rally on the day after Christmas stock rally and a follow up positive close took some risk off the table with respect to if “Mr. Market knew something the rest of us didn’t”. Part of the recent volatility can be attributed to year-end tax selling, but the violent moves appear to be the result computer-driven algorithmic trading. Volatility is usually a benefit to bonds, and given the strong economic data and low unemployment rates throughout the year, we are glad to report the 10-year Treasury is well under 2.82%. Around the developed world, interest rates remain accommodative as both China’s and Europe’s economy show signs of slowing. Whether or not a recession is on the horizon is debatable, but low rates appear to be needed to keep the global economy moving forward.

With inflation in check, a volatile stock market, the threat of ongoing trade tensions with China, as well as a partial government shutdown, we see interest rates remaining low for the first few months of the year. This reprieve in interest rates should be a boon for home buyers who were worried about rising interest rates and a slowing housing market. Banks are fighting hard for home loans and we look forward to helping our borrowers and referral partners in the coming year find the best loan they can.

Market Commentary – 6/26/15

Greece remains heavy on the minds of the global financial markets with no agreement as of Friday morning. There are rumors of a potential bridge loan being discussed, which would kick the can down the road a few months allowing more time for Greece and the EU to come to terms on Greece’s huge debt burden.

In the U.S., inflation remains mild. The personal consumption price index, the Federal Reserve’s preferred measure of inflation, rose .3% from April, which is the biggest rise in almost 2 years. If inflationary pressure build, this will be troubling for bonds.

Global bond yields continue to edge higher for many reasons. Here in the U.S., bonds were in the red Friday morning with the 10 year U.S. Treasury yield hovering around 2.48%.

With technical support levels broken, we are biased toward locking in loans.