Our sustained drop in rates appears over for now, even with additional weak economic reports in the US. Currently mortgage rates are up significantly, close to a quarter percent. The bellwether 10 year treasury is up 10 basis points to 1.55%, the highest yield since early July. Mortgages are running towards 3.625% this afternoon.
The US GDP report come out below expectations at 1.5%, down from the 1st quarter’s 2.0% number and well below the level needed to grow jobs. New jobless claims came in at 353,000, a good number and below the expectations of 380,000, triggering a major drop in the 4 week average, now at 367,000 down from last weeks 376,000. And our Durable Goods Orders came in at a much stronger than expected 1.6%, well above the consensus 0.6%. But upon looking a little deeper, much of the increase was due to new aircraft orders – very big ticket and often canceled items. When the more volatile transportation numbers are removed, the GDP was at -1.1%, well below the expected 0.2%. All-in-all a somewhat confusing collection of data.
What’s driving the bond yields and interest rates up is the news from Europe that European Central Bank President Mario Draghi will hold talks with Bundesbank President Jens Weidmann in the near future about his plan for a multi-pronged approach to reduce bond interest rates throughout Europe and support the bail out funds. With Spain, Germany and France in support the plan could end the majority of the European crisis. With Europe appearing more stable for the moment, US and German bonds are taking it on the chin. If the plan comes together, we can expect rates to remain somewhat higher, although a movement this strong seems out of line. If the plan fails we could see the 10 year drop another .25% into the 3.25% range – into very, very uncharted area.
With the Olympic opening ceremonies today, here’s a interesting fact: In the early 1900’s painting and metal works among other events, were part of the Olympics. The last year for competitive poetry was 1948.
Have a great weekend.