Bonds traded sideways this week. There was no major headline, but the markets continue to grapple with whether the slowing world economy will lead to a recession here in the U.S.
On a positive note, some good corporate third-quarter earnings and talks of a Brexit deal were good for the equity markets.
On the bearish side, poor retail spending, a lower than forecasted housing starts report and a poor regional manufacturing survey are potentially worrisome. The consumer has been the mainstay of the U.S. economic expansion for the last many years so if they stop spending then the U.S. economy would certainly feel it. Bond yields were capped by news from China that their economy grew at the slowest pace in almost three decades. The tariffs are certainly hurting China’s overall economy which suggests a trade deal with the U.S. may be closer than some think.
Mortgage rates remain attractive and borrowers continue to enjoy the benefits of these low rates in the form of lower payments or the ability to buy a larger home. As we have stated previously, interest rates should be locked-in at these levels. The 10-year has moved from below 1.500% up to 1.75%. For the moment, there is just not enough bad news to move bond yields lower, especially in light of some comments from European and Japanese officials about the lack of effect of negative interest rates. The Fed meets again on October 31st, and the comments from this meeting will be impactful on the future direction of rates.