The Upside of the Downside 10 Year Treasury – Mortgage Rates
CAMS Weekly View from the Corner – Week ending 7/19/2019
July 22, 2019
In the previous nine months we have dedicated numerous editions to the downward trend of the 10 Year Treasury Interest Rate. Our central focus throughout those installments was the message of the bond market with a curious question of whether it was pointing to a recession or a mere weakening of the broad economy in the near-future.
Our front-and-center concern throughout had been how the stock market would handle itself with the continued bond market message realizing the highly valued stock market needs continued healthy economic growth to support itself.
We are out there on the timeline relative to our first installment with no recession experienced to date. A weakening economy has occurred but context is important.
The growth rate has slowed down some but importantly this slower growth is off a very rapid growth rate. Rates of economic growth – even in the strongest trends – do not go straight up endlessly. They ebb and flow and always offer the central question as to whether the growth rate will turn over to recession when the “slowing” part appears.
It is clear we have slowed down and equally clear we are not recessionary.
From a societal perspective, the upside of the downside 10 Year Treasury Interest rate is lower interest rates generally as this bell weather interest rate plays a role in other interest rates. Most notably is the 15 Year Mortgage Rate.
Click For Larger View: https://fred.stlouisfed.org/graph/?g=orL4
The above chart depicts the Average 15 Year Mortgage Rate in the United States. The red line highlights the tremendous down trend in this interest rate in the time-frame that we have been sharing the 10 Year Treasury Bond message.
In the Fall season of 2018 Mortgage Rates were nearly 4 ½% and now here in the summer of 2019 they are in the low 3% range.
This represents a tremendous drop in this important societal interest rate and plays a large role in improving housing affordability. Add to this rising wages as the economy remains in growth mode which provides additional help on said affordability.
Putting it all together we have notably lower mortgage rates, a continued growing economic backdrop with rising wages while the stock market remains healthy at this stage.
This depicts an excellent overall story-line through the lens of markets as we head toward the latter part of the summer season.
I wish you well…
Director, Market Research & Portfolio Analysis
Portfolio Manager, CAMS Spectrum Portfolio
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