Good News? I Don't Think So.

This morning the government announced a positive report on the jobs front: only 6.7MM people sought jobless benefits this week, down from 6.9MM last week. Terrific. Six point Seven Million people out of a job. And that's not the full accounting. But we're not interested in that right now. It's just a huge number that won't go away soon.

This afternoon, the US Treasury announced $104 BILLION in new notes - two, five and ten year notes. That is a record amount; the last record was $101Billion. This activity is intended to support the Federal government's stimulus efforts. That's not good news either. Here's how Reuters reported the news:

The benchmark 10-year note's price was down 28/32 and its yield, which moves inversely, was 3.81 percent, up from 3.70 percent late Wednesday but still below the eight-month high of 4 percent set last week. [Bold added for effect.]


Fed, Supply Ahead


The latest jobless and business readings rekindled worries the Fed may tighten monetary policy by the end of the year. Fed policymakers will convene next Tuesday and Wednesday and are widely expected to signal they will not change the Fed's near-zero interest rate policy. Traders are hoping the Fed—the U.S. central bank—will expand its purchases of Treasuries in a move to hold down long-term borrowing costs.

Note, the Fed is trying to hold down borrowing costs. The reason this is important is that it is widely believed that consumer borrowing for home purchases is key to an economic recovery. As rates for Treasuries rise (to attract buyers) the cost of lending goes up. For home buyers, the 10-year is incredibly important and it will probably carry the highest rate. We need that rate to stay low so we can find affordable loans.

Two weeks ago there was a flurry of buying on the North Shore. Rates were in the 4 7/8% range. These buyers were worried the rates were going to jump, which they did. The next week, almost all buying stopped and, in fact, a few deals from the prior week were cancelled. Why? Rates continued to 5 .9%. Twenty percent higher in a matter of days. Buying since then has been sporadic, usually really well priced homes.

Anyway, watch the mortgage rates. If you're a buyer, try to lock in a rate now. There are several "Lock And Shop" options. That may be a areal smart move right now. This activity by the US Treasury can't be good for the mortgage market.

DS