Word: bond
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...Wall Street isn?t buying any of it. Last week the bond market began, in spurts, to show signs of pessimism again, bidding down long-term rates in expectation that a recovery - and inflation - was a long way off. Stocks, after trying mightily to find their footing in a week of decent economic numbers and unsurprisingly dismal earnings news, stumbled anew on Friday. And if you think the Fed?s 25 basis points wasn?t discounted about a month ago, well, go ahead and load up on equities before 2:15 p.m. Tuesday. See where it gets...
...There is just one catch: the interest rates that really matter would have to decline for this formula to succeed. And as anyone looking for a mortgage will tell you, that hasn't happened. We're talking about two rates here. The first is the Treasury's 10-year bond, which is the instrument that dictates mortgage rates. Even after a tumble last week, the yield on the T bond was at 4.99%, vs. 4.91% at the start of the year; 30-year fixed-rate mortgages average 7.16%, higher than in March and down just a bit from...
Blame this predicament on Wall Street's bond traders, a hopelessly sullen bunch bent on blocking a recovery. They are the ones keeping long-term rates high. The traders, not Greenspan, set rates by bidding bond prices up and down on the open market, moving yields in synch with their world view. That view for much of this year has been that things aren't getting any worse. See what I mean by hopeless? Last week, outplacement firm Challenger Gray & Christmas reported that layoffs announced in July hit an eight-year high. Retail sales are falling off a cliff...
...housing bubble probably isn?t yet big enough for that. But the last upwardly-mobile source of consumer wealth to survive this slowdown is definitely under siege. Because those bond traders have lately become convinced that the economy is bottomed out, long-term interest rates have crept back up and brought mortgage rates with them, in spite of the Fed chairman?s rate-slashing leadership from the short-term side. And if refinancing slows down demand, home prices - especially at their present giddy heights - could drop like a brick. Bye bye, boom...
...good news is the market rarely taketh away without a little giveth to go with it, and there?s one upside to a housing chill. Those bond traders might become convinced that the sky is falling and stop worrying about inflation - bringing mortgage rates back down and putting some fuel back into the housing sector and some refi money back into consumers? pockets...