Weekly Economic Summaries are submitted courtesy of Richmond Hill, GA mortgage broker, Aaron Langes. Aaron is a Loan Officer with Bank of America, a preferred partner of Keller Williams Realty, Richmond Hill. Please note that this is Aaron’s (912.678.6063) area of expertise and I provide the information as a resource – in other words, he can answer your questions better than I can

OVERVIEW ~ for March 29 through April 2, 2010, the stock markets improved while Treasury security yields ended lower. Mortgage rates rose along with Treasury note rates.

FOCUS ~ Three reports brought cheer to the markets.

1. This was the week, of course, when the Federal Reserve ceased its purchases of mortgage-backed securities (MBSs), a move that had been awaited with some concern by investors. The Fed has been buying up MBSs so as to make sure there is adequate demand for the huge supply available for purchase. If demand were to decline, yields to investors would rise, very likely taking other interest rates higher as well. However, the markets have had plenty of time to digest the fact that the Fed was going to stop making the purchases. No panic ensued this week, therefore. But no one is certain that private investors can fully take up the slack left by the Fed’s exit from its purchase program. Still, the initial mild reaction calmed the markets.

2. Surveys showed that manufacturing orders and output were improving solidly, not just in America, but throughout the world. The U.S. Manufacturing Index reached its highest level since 2004. Meanwhile, China’s manufacturing sector grew for the thirteenth consecutive month. Exemplary of the positive manufacturing data were signs of growth from auto manufacturers, with General Motors and Honda each announcing a 20% jump in auto sales. The news, especially since it was strong throughout the world, led to a rise among stock markets, as investors acted on a firmer belief in the economic recovery’s strength.

3. The important employment report for March was released Friday, April 2. It showed an addition of 162,000 payroll jobs in our nation. At the same time, the household survey component of the report indicated that the unemployment rate remained where it was at 9.7%, which was understandable since more people are probably looking for employment as a result of job market improvements, and those who are once again seeking employment are treated as additions to the ranks of the unemployed. (When they weren’t actually looking for jobs, they were in a statistical limbo in which they were neither unemployed nor employed.) These numbers suggest that our economy is unlikely to continue shedding jobs, and thus the stock markets reacted favorably. However, though the numbers showed a clear improvement, they simply aren’t high enough yet to force the unemployment rate lower. We need at least 250,000 new jobs each month in order to employ those Americans newly entering the work force.

Weekly Economic Summaries are submitted courtesy of Richmond Hill, GA mortgage broker, Aaron Langes. Aaron is a Loan Officer with Bank of America, a preferred partner of Keller Williams Realty, Richmond Hill. Please note that this is Aaron’s (912.678.6063) area of expertise and I provide the information as a resource – in other words, he can answer your questions better than I can

OVERVIEW ~ The credit markets moved from calm to confusing over the week of March 22 through 26. The 10-year Treasury note yield climbed from 3.689% at Monday’s opening to 3.852% at the close on Friday.

FOCUS ~ Three apparent causes of rising interest rates from March 22 through 26 raised some difficult questions. What are recent investor decisions, as suggested by their actions, telling us?

First, it was another week of large Treasury security auctions, this time offering 2-year, 5-year and 7-year notes. Ironically, the day before the auctions began, The Wall Street Journal ran a story declaring that since Inflation was currently “dead,” we could expect to see the kind of heavy demand for Treasury notes that we’ve seen in other recent auctions. But we didn’t. Why?

Second, global investors were visibly worried by debt troubles in the euro region; they pushed the dollar far higher against the euro. But this has usually meant an influx of investor dollars into the safe haven of Treasury securities. This time, though, the connection between a higher dollar and elevated demand for Treasury securities didn’t hold. Why?

Third is a rather obscure hedging strategy that involves trading the income stream from Treasury securities for the income stream from floating-rate corporate bonds. The corporate bonds have always provided a slightly higher yield because they haven’t been considered as safe as the Treasury securities, which are backed by the full faith and credit of the U.S. government. Last week, though, their yield in this swap arrangement actually fell below the yield of Treasury securities for the first time ever, suggesting that investors felt safer with the corporate bonds than with the Treasury securities. Why?

We just don’t yet know why these odd events are taking place. But this is a topsy-turvy set of actions, and it suggests, at least, that investors all over the world may be losing confidence in government securities. Until now, less confidence in foreign securities has only reinforced confidence in American securities. But investors seem to be taking a dimmer view of American securities now, and if they continue, it could push interest rates still higher, as it did this week. Higher rates in the market could force the Federal Reserve’s hand as well, making it difficult to maintain lower short-term rates for much longer. It is a time to watch the Treasury securities markets with special care.

Weekly Economic Summaries are submitted courtesy of Richmond Hill, GA mortgage broker, Aaron Langes. Aaron is a Loan Officer with Bank of America, a preferred partner of Keller Williams Realty, Richmond Hill. Please note that this is Aaron’s (912.678.6063) area of expertise and I provide the information as a resource – in other words, he can answer your questions better than I can :)

OVERVIEW ~ March 15 through 19 was a rather quiet week, a welcome respite from the ceaseless turmoil of markets moving first higher, then lower, then reversing again. The Dow Jones Industrial Average began the week at 10,624.69, then made minor improvements on the figure, adding from 0.2% to 0.4% each day until Friday. At the week’s end, unsurprisingly, investors found a few small bits of data to worry about. They also saw prices on various shares of stock that made the equities, for some investors, possibly worthy of selling. And the DJIA fell a mild 0.35%, ending the week at 10747.98.

Interest rates, meanwhile, remained quiet. The 10-year Treasury note yielded 3.702% at the beginning of the week and treaded water, end-
ing the week at 3.693%. That amounted to a 0.2% decline. The Freddie Mac average rate for their 30-year mortgage, measured Thursday through Thursday, rose from 4.95% the prior week to 4.96% on Thursday March 18.

Why the calm? There was little for investors to be unusually nervous about. Federal Reserve Board Chairman Bernanke also helped matters by promising, once again, that it would be several months before the Fed allowed short-term rates to rise very far above 0%.

FOCUS ~ Further, there were bits of data that tended to calm the nerves and suggest that the economy probably is heading toward a sustainable recovery. A simple example: A company that freights, flies and delivers a vast amount of the goods produced by this nation and purchased by consumers, reported that its fiscal third-quarter profit more than doubled year-prior earnings. As a major participant in the world economy, this company can likely be seen as something of a barometer. Its health and growth suggest that the world economy is improving.

The current yield curve is another matter of special interest. (The yield curve is generally defined by the distance between the yield on the 2-year Treasury note and the 30-year Treasury bond.) In February of this year, the gap stood at a record 2.926. On Monday, March 15, the gap had narrowed to 2.742, closer to where it stands when the economy has regained strength and borrowers and lenders both expect a reasonable but not excessive premium for long-term lending. (If the gap becomes either too high or too low, we can expect market forces to bring the gap back into balance as the economy improves.) The gap is indeed moving toward a more normal range, and it may decrease even more rapidly when the Fed ceases its downward pressure on short-term rates. Though the markets fear the moment when the Fed makes this change, a change in Fed policy may become unavoidable if the yield curve continues to narrow.