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March 5, 1993
Mortgage and bond yields hit their newest new lows by noon on Thursday, and had reversed themselves entirely by 9:00 this morning. If mortgage discounts hold their point- and-a-half morning pounding, this will be the first week since October ending with higher rates than the week before.
Of course, every newspaper in the country will be trumpeting "Record Lows!" for the next few days. National mortgage surveys lag reality by almost a week, and your clients will be more confused than usual.
Except for labor statistics (see below), data were a tad soggy. Construction Spending fell 1.3% in January, as did Leading Indicators (-.1%), New Home Sales (-6.4%), and Factory Orders (-1.3%). The February Purchasing Managers' Index settled down 2.2% at a still-strong 58.0%.
The proximate cause of today's bond market pasting was the February employment report. Non-Farm Payrolls exploded to a 365,000 gain, triple expectations, and the best month in four years.
Bonds fell apart completely when the White House said that stimulus spending was still necessary, jobs or no jobs. These guys spend money the way George Bush plays golf.
Despite this ugly day, mortgage and bond yields can easily go lower. Of course, in this environment, interest rates can do anything, and probably will.
Lots of us thought that long rates would come down this year, but nobody thought it would happen this fast. Salomon, the great god of bond trading, dropped a quarter of a billion dollars in the last 60 days betting that rates couldn't fall this far this fast.
The bond market model with which we had all gotten so comfortable -- the gridlock model -- has been blown to smithereens.
A weak economy is supposed to help bonds. And weak it should be, with deficit spending to be cut, and a huge tax increase coming.
Hold on there! In the short run, spending is to increase, which should goose the economy. The new taxes won't bite for a year or more, and the deficit reduction is further out than that. And in the shortest term, interest rates are 'way down, which should stimulate the economy.
Bill Clinton promised change, and there is so much change in the system that nobody knows where the economy is or where it is going. Nobody knows whether the low in mortgage rates is a half percent below here, or if we have already overshot by half a percent.
In the meantime, it's pleasant to be confused about low, lower, lowest, and lowest ever. Enjoy.
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