Posted by
boxflyz About Econ on Thursday, August 16, 2007 4:32:14 PM
It is possible that a new floor is being established as this post is being written. The rate on the 10-year Treasury is closing at 4.600% which is -.106% in rate, and the price is +31/32nds. Price and rate always move in opposite directions.
There are so many causes of this rate drop it appears that they all are.
The morning began with news of stocks selling off in Asia. They were concerned with America’s credit crunch. For today, their concern seems to be well founded.
Our bond markets (this is a US blog) opened with bad economic news. Bad for the economy = good for rates. Most of the bad news was not a big surprise in the sense that a new sector of the economy is hurting. For that reason, the good rates MAY be short lived.
The US Housing market is in a slump. Today’s Housing Starts and Building Permits confirm this. The fact that the home construction industry is hurting is not a surprise. The revelation this morning was in how deep the new home slump is.
Housing Starts were expected to be 1.400k to 1.415k. The actual number came in at 1.381k. The less important Building Permits were expected to be 1.39k to 1.420k. Builders filed 1.373k in July.
In addition to low housing, the weekly Initial Jobless Claims number was higher than predicted. As an inverse indicator, a higher number than expected is bad for the economy. Bad for the economy = good for rates. Economists were looking for the jobless number to be 310k to 315k. Last week 322k workers filed for unemployment insurance.
That alone pushed rates down, where they moderated until 11:00cdt {16:00gmt}. Then the forward looking Philadelphia FED came out with their index. Analysts were expected it to be +8.0 to +10.0. It was far lower at 0.0.
After this, the 10-year Treasury dropped driven both by bad news in the economy and bad news in the stock market.
At one point the DJIA was at 12,517.94 which was -343.53. Around the same time, the S&P500 was 1370.60. The stock market recovered after the bond market closed. The DJIA closed at 12847.08. The S&P500 closed at 1411.27 which is +4.57 (that’s right, it was up!). Only tomorrow will tell if bonds reverse course.
Yesterday 15 August post close report:
The rate on the benchmark bond had a bit of a roller coaster ride once the economic information had been absorbed, or better yet, ignored. The rate on the 10-year Treasury did closer lower as it trended with the stock market. The 10-year Treasury closed -.026% with the rate at 4.706%
SHORT-TERM OUTLOOK [26 July 2007]
It is possible that the trading range has been broken. It appears the ceiling is around 4.900%, maybe a 5.000% flat. The floor was starting to be established around 4.700%. Today’s closing at 4.600% may make a new one, if not lower to 4.500%. It will need to trade below the 4.700 “old” floor a few days before a new one is established. If the bond can remain low tomorrow, the new floor may be there.
Friday, August 17, 2007
Mid-Aug Reuters/U Of Mich Sentiment Index. Expected 87.0 to 88.5 Previous: 90.4.
Steve Boxmeyer [612] 799 – 6858
steve@LendWithIntegrity.com