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What's New: I've updated the charts below through Thursday's close (February 21st). The S&P 500 has seen two days of selling and is now 1.86% off its interim high set on Tuesday. Many market watchers have been expecting a correction. But the yield on the 10-year note, which closed at 1.99%, remains where it has been hovering for the past four weeks. At this point the bond market isn't yet behaving as if the stock market were slipping into correction mode.

The latest Freddie Mac Weekly Primary Mortgage Market Survey puts the 30-year fixed at 3.56%. That's only 25 basis points above its historic low, which dates from the third week in November. However, its the highest weekly average since the end of August.


Here is a snapshot of selected yields and the 30-year fixed mortgage starting shortly before the Fed announced Operation Twist.

(click to enlarge)

For a eye-opening context on the 30-year fixed, here is the complete Freddie Mac survey data from the Fed's repository. Many first-wave boomers (my household included) were buying homes in the early 1980s. At its peak in October 1981, the 30-year fixed was at 18.63 percent.

(click to enlarge)

The 30-year fixed mortgage at the current level is a confirmation of a key aspect of the Fed's QE success, and the low yields have certainly reduced the pain of Uncle Sam's interest payments on Treasuries (although the yields are up from recent historic lows of this summer). But, as for loans to small businesses, the Fed strategy is a solution to a non-problem. Here's a snippet from the latest NFIB Small Business Economic Trends report:

Six percent of the owners reported that all their credit needs were not met, unchanged from December. Thirty-one (31) percent reported all credit needs met and 3 percent reported that financing was their top business problem. Thirty-one (31) percent of all owners reported borrowing on a regular basis, up 2 points from December and historically low. A net 7 percent reported loans "harder to get" compared to their last attempt (asked of regular borrowers only), 2 points lower than December. The average rate paid on short maturity loans was 5.5 percent, stuck at much the same level for years

A Perspective on Yields Since 2007

The first chart shows the daily performance of several Treasuries and the Fed Funds Rate (FFR) since 2007. The source for the yields is the Daily Treasury Yield Curve Rates from the US Department of the Treasury and the New York Fed's website for the FFR.

(click to enlarge)

Now let's see the 10-year against the S&P 500 with some notes on Federal Reserve intervention. Fed policy has been a major influence on market behavior, and the S&P 500, our market exemplar below, is, as I pointed out above, nearing an all-time high. It's thus not surprising that we've heard rumblings that some Fed members are rethinking policy. See the February 1st Bloomberg news item Fed's Bullard Urges Cutting QE Pace if Data Stay Strong.

(click to enlarge)

For a long-term view of weekly Treasury yields, also focusing on the 10-year, see my Treasury Yields in Perspective.

Source: Treasury Yield Snapshot: 10-Year Still Hovering Near 2%