This week saw Treasury yields endure another roller coaster ride only to end relatively unchanged from last Friday. Concern over surging COVID-19 cases around the world driven by the virulent Delta variant caused stock prices and bond yields to plunge Monday. The Dow Jones was down nearly 950 points at one point before finishing the day down 725 while the 10yr yield fell 10bp to 1.18%. But investors once again bought the dip in stocks and by the end of the week prices had recovered all their losses plus some while the 10yr finished the week about where it started. At one point this week the 10yr yield was down 56bp from its recent peak of 1.74% on March 31 following a 123bp rise from the August 2020 low of 0.51%. This is yet another reminder that yields never move in a straight line forever but instead rise and fall in patterns of significant moves in one direction followed by a slightly less significant retracement before the next big move. The most important question for investors today is just how long this retracement period will last before the next big reversal.
The economic calendar was relatively light this week with reports on housing and an unexpected jump in jobless claims dominating the news. Tuesday was a mixed bag with Housing Starts jumping 6.3% in June while Build Permits unexpectedly fell 5.1%. Since Building Permits are a better indicator of future economic activity, analysts speculated that soaring house prices and building costs may finally be taking their toll on the housing market. This notion was reinforced Thursday when Existing Home Sales rose a less than expected 1.4% while the median price of a home sold surged 23% to a record high $363,300. To put into perspective just how expensive housing has gotten, house prices are now 57% higher than they were just prior to the financial crisis and they are up a staggering 134% from the low in January 2012. While there remains a heated debate as to whether or not the housing market is in a stimulus driven bubble, the chart below paints a picture of an unsustainable rise in house prices that threatens to price more and more homeowners out of the market and potentially destabilize the economy if prices reverse.
US Existing Home Sales Median Price: 2001 to Present
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