Two Big Things Moving The Market

The Last Week In Review: Two Big Things Moving The Market

The volatility in the financial markets continued this past week, and at the end of it all, home loan rates were pretty much unchanged. Let’s break down two big things moving the markets.

More, More, More

1. This past Wednesday, Congress passed a whopping $1.9T stimulus plan. “How did the markets like it?” They loved it! The Dow Jones hit an all-time high, closing above 32,000 for the first time. Interest rates typically move higher when stocks soar, but not this week. Bond prices were able to pause their recent decline, giving lenders a break from the recent spike higher in home loan rates.

The $1.9T plan is expected to help the economy recover more quickly than previously expected, but it also carries two concerns for the bond market and interest rates. One is inflation. We are already seeing inflation expectations for the next ten years hit the highest levels since 2014. Throwing large amounts of money onto an economy that is already doing well where states are open, could elevate inflation further which means rates will be pressured higher again. The other concern is all of this stimulus, now $5T since the start of COVID, must be paid for by selling new bonds in the market. Who is going to purchase all of this debt? And at what price? These are questions that will be answered over time.

Cure for Higher Rates Is Higher Rates

2. The 10-Year Note yield hit 1.60% recently, and that level has been a ceiling for the Treasury market, meaning that level has kept rates from moving higher still. With the recent uptick in rates, the U.S. has attracted foreign investments from around the globe as our anemic Treasury yields are relatively attractive to other sovereign yields. If you look at the 10-Year German Bund yield at minus 0.33% or the 10-Year Japanese Government Bond at 0.10%, it is no wonder foreign investors jumped into the U.S. bond market of late, purchased our 10-Year Note and thereby helped pause the increase in rates here.

Bottom line: The recent pause in rates rising, could be just that: a pause. As economies reopen, we should expect rates to continue to increase over time.