This Week: after a huge and swift increase in interest rates over the past two weeks that has left many in the mortgage business and real estate world scratching their heads, the bond and mortgage markets will likely start the week with not much change from Friday's closes. Both treasury and mortgage markets are overdue for some retracement as most all of our key momentum oscillators are at oversold levels. That said, we do not expect much improvement early this week with Treasury auctions beginning on Tuesday through Thursday; a total of $66B, $32B of three year notes Tuesday, $21B of 10 yr notes Wednesday and $13B of 30 yr bonds on Thursday. Recent Treasury auctions have been a little disappointing in terms of demand but with the recent increase in rates demand may increase.
Not much economic data this week, giving the markets a possible respite. The debt problems in Europe remain but will likely take a back seat this week, the ECB and EU won't let Portugal and Spain slip into default, yet the bailout plans not yet totally formulated will keep traders focused.
The recent spike in rates may be a little too aggressive measured in the near term but we firmly believe the decline in rates is over and the path is up for rates. What remains now is how to deal with retracements, as we get a bounce talking heads and media will paint a rosy picture; many that missed out on locking up lower rates will again likely miss, waiting for more improvement and wishful thinking. The economic outlook is improving, the Fed wants inflation somewhat higher; hard to expect lower rates with those hurdles. Putting some perspective on it; even at the current level of interest rates they remain historically low, a look at history should help putting it all in perspective; rates at these levels haven't been seen since the late 50s and are unsustainable.
