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April 24, 1998
Rates rose in a week with no meaningful economic data as markets worried about two special days in May and immense borrowing by corporations.
Mortgage and bond yields didn't move far, but are approaching the top of the range of the last five months. By week's end, mortgages were trading around 7.25%, and bonds almost to the 6.00% mark.
Two days in May.
Next Friday, May 1st, is the economic sweepstakes for the month as a whole. When the 1st of any month (except January) falls on a Friday, the markets are hit with both the first-Friday-of-the-month payroll data from the Labor Department and the first-business-day-of-the-month Purchasing Manager's index (NAPM).
Jobs arrive at 8:30 EST, NAPM at 10:00 EST. By noon next Friday, we'll have a good idea where rates will be all the way into the summer.
So will the Fed, which meets on May 19th. Despite wide-spread rate optimism among New Age Deflationists and Asian Fluers, there is growing awareness that the Fed is not pleased with the non-slowdown from Asia, fluffy stock prices, and borrowing frenzy in the bond market. Last week, Fed governor Lawrence Meyer said that the current Fed funds rate was not restraining the economy "at all".
If you feel like gambling, now is the time. The bond market has been in a nice, tight, polite range for a long time, and we are overdue for a large move. Rates are as high as they are out of anxiety about the next three weeks, and if that anxiety is relieved, rates can break to new lows.
However, as a card-carrying Old Time Inflationary Overheater, I think the current anxieties are very well placed, and wouldn't float a rate of my own through the next three weeks for anything.
The holy grail of finance for the last thirty years has been a balanced budget. However, the United States Treasury is not the only outfit that knows how to sell an IOU.
In the last week, large corporate bond sales included Ford's $3.25 billion (they sold an extra billion because buyers clamored for more), and $2.1 billion by GTE. Daily volume exceeded $5 billion. And you thought Ron Reagan was a credit junkie.
Speaking of junk, and local interest, Broomfield-officed Level 3 sold a $2 billion junk bond issue yielding 9.1%, appropriately high (investors hope), as Level 3 has no revenue and has existed as a separate corporation for three whole weeks (Level 3 Weeks?). Year-to-date junk bond sales total $53 billion, double last year's pace and on a par with the Treasury's biggest binge ever.
All this borrowing makes it look like money is too cheap, a situation the Fed often feels it should rectify.
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