At this late hour of posting, the market is down (interest rates up.)
The market mover is a continuing of positive economic data. Housing came out with an increase in previously owned sales for the first time in four months, and initial applications for jobless benefits declined by 24,000. All in all, the feeling is growing that the economy is rebounding — which will (1) move money out of bonds and into stocks, and (2) fuel an expectation to see the Fed step in at some point with a rate increase.
Also weighing on the prices is the reality that the US has again planned a (record) sale of $129 billion next week. For perspective again, last year’s sales were about $9 billion in debt per week. And this amount of supply will heavily weigh on demand (and therefore, prices — moving them downwards.) All of this points to higher interest rates — in the current; and if we keep spending this way, in the long run.
On the other side (driving money to bonds, positive for interest rates), investors are beginning to feel that Greece is going to default, and with this expectation, a degree of money is flowing into US bonds. The prevailing feeling is that they will not be able to rein in their extraordinary spending. –And interestingly enough that I write this paragraph, after the one above. I pray that we learn the lessons of others before they become our own.
Moreover, with global economic outlook picking up, several other countries are now looking at setting higher interest rates — which will directly affect our own: India was the latest to tighten and Canada signaled it will tighten soon, reinforced the longstanding conventional wisdom that US interest rates, particularly mid and long term rates, will trend higher over the long term.
I expect Greece’s situation to continue to worsen over the next near horizon (lower interest rates), but look to continuing positive economic reports, the volume of which will affect rates higher.
