Market Commentary – 12/16/16

As we quickly approach the symbolic Dow 20,000 benchmark, some of Wall Street’s best and brightest are calling for an end of the 30-year bull run in bonds. The U.S. 10-year Treasury Note, the world’s benchmark for pricing everything from mortgages to long term corporate debt, broke through the psychologically important 2.500% threshold this week. The 10-year note has surged almost 1 percentage point since the November election. This is a drastic and destructive move and the pain is being felt by bond holders who have seen their bond portfolio trade sideways in response to the increase in both domestic and global yields.

The reason for the increase in bond yields is not complicated: it is driven by prospects of a more business-friendly government and the expectations of lower taxes, increased wage growth, and ultimately future inflation.

On a positive note, while rates are going higher, we should not expect the purchase market to slow materially. In fact, if we do see economic growth, higher confidence, and whiffs of inflation, then we should expect the purchase market to do well.

Rates should be locked based on the fact that the current market is highly volatile.