We all knew the bond market rally had to come to an end. The rapid decline in the 10 Year Treasury heading toward the 3.00% mark came to a screeching halt this week. Given the amount of economic data that was released this week, we should not be surprised.
After hitting a low of 3.18% on May 25th, the 10 Year Treasury closed out the month of May at 3.31%. The rapid drop in the treasury yield was due mainly to concerns over the European debt crisis which fueled a flight to quality for investors.
Despite many concerns that remain over international debt, positive news in housing fueled some of the rebound of the 10 YR Treasury this week.
The one question that remains is that although mortgage rates are not tied directly to the movement of the 10YR treasury, many experts were surprised that the drop in mortgage rates did not mirror the drop in the 10YR more closely.
Existing home sales jumped 7.6% which exceeded analyst's expectations. As we all know, the tax credit stimulus plan is assumed to have played a major role in the larger than expected increase. Housing inventories also jumped dramatically by 11.5% to a supply of 8.4 months. The existence of the heavy supply of homes combined with the absence of any housing stimulus, point to the risk of price erosion in the months ahead.
In other housing news, the Case-Shiller House Value Index showed that overall home prices have remained flat for the month of March. It is expected that in April the prices should rise given the consumer's rush to lock in their home purchase prior to the expiration of the 2nd round of economic housing stimulus. Predictions for home prices beyond April are uncertain.
New Home Sales surged 14.5% beating analyst's expectations. In addition, new housing inventory also dropped to a 42 year low which shows that the area of new construction housing is showing signs of rapid recovery. Granted that we have seen major declines in the amount of new construction spending since the start of the recession, the current trend indicates the lure of purchasing new construction is rebounding faster than the existing home market.
In other news, the stock market roller coaster ride continues. After the free fall earlier this week, the stock market regained some of the losses and closed out the week above the 10K mark.
GDP and Jobless claims showed gradual and steady improvement. Although neither number is earth shattering, none the less, they are both showing that the economy is improving at a very gradual pace.
Consumer confidence as well as consumer sentiment both are showing that the American public is feeling better about the economy as well. In addition, many Americans seem to feel that the job market will improve dramatically in about 6 months.
Economic news on tap for next week:
• Tuesday June 1st - Manufacturers Index
• Wednesday June 2nd - Pending Home Sales
• Thursday June 3rd - Jobless Claims
• Friday June 4th - Employment Situation
Have a good weekend,
JJ Mack
916-517-1800 x300
jj@granitefundinggrp.com
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