June 14th, 2010 4:24 PM by Nick Rapplean
The Dow started the week shuffling between 100 and 200 points below the 10,000 mark, looking like it might be some time before we see a 10,000 Dow again. But the Dow had crossed the 10,000 line by Thursday, and it ended the day Friday at 10,211.07—a gain of 2.8% on the week. This was particularly impressive if you noticed that there really was not’t any significant economic news driving the stock market indices higher. Instead, it appeared that the markets were simply inclined to rise to their former levels, like an economic Cool Hand Luke, perhaps.
At the same time, though, gold hovered near record levels. Watching the movements of both stocks and gold, it appeared that the consensus still sees a recovery underway, but isn’t confident enough in that vision to avoid hedging its bets, thus driving up the price of gold.
It was another charmed week for Treasury security auctions. We discovered that PIMCO, which had predicted a long season of rising interest rates, decided to buy Treasury securities once again. Bill Gross, the firm’s famous Managing Director, blamed the changing conditions on European debt and the fact, as he sees it, that Europe won’t be able to grow its nations out of debt with more debt. It’s a point worth pondering, and it continues to send more global investors into the safe haven of American Treasury securities.
The 10-year T-note spent much of the week slightly below 3.2%, but ended the week at 3.218%. Why? Charmed week, as I said. A brief spike for the 10-year T-note brought investors into the auction of 10-year notes on Wednesday, making for a very strong auction and taking the note’s yield a bit higher. The next day’s 30-year bond auction was pushed along by similar forces, its yield ending the day a bit higher.
(Purists will be justified in wondering why the strong demand for these securities didn’t increase their cost, lowering their yield, but it was a higher yield in the open market that brought in so many investors, and they came with higher bids that reflected higher market rates. Thus, we ended up with slightly higher yields. The 10-year, as this is written Monday morning, remains at about 3.2%. I have no idea where it will go from here, except that it probably won’t go far.)
The Freddie Mac 30-year FRM average rate fell last Thursday from 4.79% to 4.72%. This puts us at near-record levels, which is somewhat irrelevant if it doesn’t inspire homebuyers to act. It’s worth pushing a pencil on this, by the way. There is a movement to restore the $8,000 tax credit, extending the June 30 deadline to September 30. But far more significant that such a tax credit is the money a homebuyer can save with mortgage rates as low as they are now.
There is no obvious end date for this extraordinary savings opportunity (unless the borrower is a brilliant forecaster of interest rates…or just lucky). But we do know that the savings are there right now. It’s worth looking at closely—for every potential borrower on the sidelines.
As I send this missive out into the world, American stock markets are enjoying one of their bursts of optimism, taking indices higher. How long this will last is more than difficult to say. But the borrower who takes advantage of today’s super-attractive interest rates will almost certainly save a great deal of money for as long as his or her loan lasts.
Nick Rapplean