Bond yields rise, dashing hope for lower rates on home loans
Wall Street went back to feeling better about the economy Thursday, and that dashed hopes for a sustained drop in mortgage rates.
Treasury bond yields jumped on some surprisingly upbeat economic reports -- including the first decline since January in the number of Americans drawing unemployment benefits, and a bigger-than-expected rise in May in the index of leading economic indicators.
What’s more, the Treasury put a number on the amount it will borrow next week in new two-, five- and seven-year notes. The total of $104 billion in planned note sales was above expectations, reviving worries about Treasury securities swamping the market as the government’s borrowing needs soar, said John Spinello, a market strategist at Jefferies Group in New York.
The 10-year T-note yield, a benchmark for mortgage rates, surged to 3.83% from 3.64% on Wednesday. It had reached an eight-month high of 3.99% on June 10, then quickly pulled back amid some disappointing economic reports.
Spinello figures the T-note may head back to 4% soon as the supply of new bonds balloons again and investors demand a higher return to take the debt. That could put fresh upward pressure on mortgage rates, which spiked higher early this month before receding a bit in recent days.
George Goncalves, interest rate strategist at bond dealer Cantor Fitzgerald in New York, argues that investors are too optimistic about the economy and that current Treasury yields will prove to be good returns for investors.
But for now, the Treasury market is again losing the battle with stocks, commodities and other markets that typically attract money when people believe that things can only get better.
“There’s still too much love for ‘risk’ markets,” Goncalves said.
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