The Economy and Bond Market Cheat Sheet (August 29, 2011)
The yield on the ten-year U.S. Treasury Note increased 12 basis points this week to end the week at a yield of 2.19 percent.
The Mortgage Bankers Association Purchase Index, which measures the volume of applications to purchase single family U.S. homes, fell 5.7 percent to 157.90 in the week ended August 19 from the prior week, the lowest index level since December 1996. The chart below of that index illustrates the weakness in the housing market despite near-record-low mortgage rates.
Strengths
- July durable goods orders increased 4.0 percent from June levels, above the consensus 2.0 percent forecast and the best report since March.
- The Federal Housing Finance Agency reported that its house price purchase index for June increased 0.9 percent from the prior month, above the 0.2 percent consensus.
- The Chicago Federal Reserve national activity index improved to minus 0.06 in July from minus 0.38 a month earlier, and it was better than the consensus estimate of minus 0.48.
Weaknesses
- Initial jobless claims in the U.S. rose by 5,000 to 417,000 in the week ended August 20, above the 405,000 consensus.
- Sales of new homes in July fell 0.7 percent month-over-month to an annual pace of 298,000, the lowest level in five months and below the 310,000 consensus.
- Real gross domestic product for the second quarter was revised down to 1.0 percent from the prior 1.3 percent estimate.
- The home mortgage delinquency rate was 8.44 percent in the second quarter, an increase of 12 basis points from 8.32 percent in the first quarter. This was the second consecutive quarterly increase.
- The University Of Michigan Survey Of Consumer Confidence Sentiment fell from 63.7 in July to 55.7 in August, the lowest level since November 2008.
Opportunities
- With the economy weak and concerns brewing about an additional financial crisis, the Federal Reserve will remain accommodative for some time and bonds appear well supported in the current environment.
Threats
- There is a crisis of confidence in world leaders at the moment and the potential for another financial crisis is rising.
