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April 23, 1998
The lowest-fee mortgages rose to seven-plus this week, pushed higher by oil prices, competing bond deals, and a La-La Land stock market. There's just a dash of Kosovo in the soup, too. West Texas Intermediate Crude reached $18.43/bbl yesterday, up 60% in 60 days. Oil market commentators have the usual things to say, ranging from: "OPEC is still in charge whenever it wants to be, and we're headed for $20 crude..." to: "... just a blip in long-term oversupply, and a slide to $10." The most likely outcome for oil is a return to some $14-17/bbl trading range, not a drastic move to either pole. However, "drastic" means different things to different people. The clunk down from $18/bbl to $$12/bbl in the World Crisis last fall was a powerful inflation-suppresser. The bond market very much enjoys such suppression, no matter how accidental and temporary it may be, and traders develop withdrawal symptoms when they discover they're not going to get another fix.
Competing bond deals. In another indication that the World Crisis is fading, Brazil has suddenly returned as creditworthy issuer of bonds. Brazil, whose near-collapse helped mortgage rates in January, sold $2 billion in ten-year bonds yesterday. The sale required a staggering, 11.88% interest rate; but 90 days ago the market would not buy a Brazil bond at any yield. Tough nuts, those were. Other competitors include Sprint, which will shortly hit the market for $3 billion. The Treasury may be paying down debt, but there is no shortage of borrowers.
Stocks. On Monday, the %5.7 one-day collapse of the NASDAQ made it look like the bond market was going someplace, maybe taking mortgages down into the sixes to stay for a while. However, by week's end, the NASDAQ has recovered to only a percent below its all-time high, and the Dow is pushing eleven grand. "La-La Land"? AOL now has a market value of $200 billion; each of its subcribers is therefore worth $15,000, or 50 times the annual subscription fee.
Kosovo. The euro has hit another all-time low. "All time" is only four months, but it traded in the 1.05s yesterday (down 10% since birth) on speculation of NATO deployment of ground troops. If this police action is expanded from all-zoomie to include ground-pounders, it will have a negative impact on rates here -- if only because all the argument over what to do with the budget surplus will have been resolved. Not Kosovo, of course; just the budget.
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