Market Commentary 1/19/18

Even with the chance of a government shutdown looming, government bond yields continue to rise. The 10-year Treasury note broke through a key resistance band this week of 2.62%, a level not seen since the summer of 2014. While the U.S. stock market roars higher, the rise in interest rates has been the most notable development of the year. The reason for the rise in yields may be attributed to several factors including:

1. A nascent global synchronized economic recovery.
2. Inflation is beginning to simmer as CPI data suggests inflation is picking up.
3. The economies of Europe and Japan are improving, which may allow the central banks of these countries to step back on quantitative easing.
4. China’s economy continues to grow beyond projections.

The aforementioned positive factors have pushed interest rates domestically and higher abroad. The 10-year German Bund recently pushing above .50%.

With the increased confidence in the economy, higher wages, and the 2018 tax cuts now in place, slightly higher interest rates should not adversely affect the housing markets. However, given the move above 2.62% on the 10-year Treasury, we remain biased toward locking-in interest rates at current levels. Even with the recent move higher in interest rates, interest rates are still at historically attractive levels with many economists believing the 10-year Treasury note to trade no higher than 3.000% this year. A rise above 3.000% may be problematic, but for now, current interest rates continue to be a boon for real estate, equities, and commercial and residential real estate.

Opinions, beliefs, and viewpoints expressed by the author are his own.