Mortgage Rates Higher - Volatility Continues

There is very little volatility in the US equity markets but the volatility in the bond and mortgage markets continues. Mortgage rates moved higher out of the gate for a second straight week, though today's jump was smaller than last Monday's.  All of the price gains we had Friday and the decline in the 10yr note rate is all gone now. The 10yr at 2.24% up 10BPS as we saw Friday the 10yr lost 10BPS.

What is causing the extreme volatility in the bond markets? Do not look for accurate answers, just suppositions. Today the San Francisco Fed out saying in a study that the data being reported on the economy is off the mark, that Q1 growth is more likely an increase of 1.2% instead of markets’ assessment that Q1 will be negative. The Atlanta Fed has a study that I believe is more accurate, its assessment is the most bearish out there with current estimate of a 0.2% decline in GDP. Take away that even the Federal Reserve is not sure what is ahead. Greece is back in the mix with EU members meeting in Latvia this week. Greece made a payment to the IMF but can they come up with more money for the next payment?

This morning the NAHB May housing market index was another weak report on housing.  Last week’s data was soft, retail sales consumer sentiment, industrial production, factory use - all soft. Tomorrow April housing starts and permits - starts expected to be up 10% from March, we do not believe starts will be that high - permits expected up 2.9%.

These are truly the ‘new normal” conditions. The stock indexes are making new all-time highs against data that is not matching the bullish outlooks - betting on the future that is not understood by anyone. It is all the Fed and other key central banks, printing money keeping rates low and making an historical attempt to inflate economies and making holding fixed income investments a losing trade. Seniors forced to stay too heavily invested in more risky investments into stocks. So far so good, the equity market continues to climb higher. The take away here is that no one should take everything as gospel coming from economists, analysts and the media.  As long as I have been in the world of finance for 40 years - I have seen the do not worry be happy for the tech bubble, several housing bubbles,  inflation at 16%/yr, collapse of auto sales when there was no gasoline to buy, interest rates to 18% for mortgages, and numerous market shocks. One important point here - most of the historic events occurred when information was very costly.  Now it is cheap and available to anyone with a thought, the result is too much information to analyze and think about before reacting – which equals high volatility and uncertainty.