Europe Pain is Bonds Gain

October 16, 2020jordanreedNews

Last Week in Review: Europe Pain is Bonds Gain

U.S. Bond Market = Safe Haven

Last week, investment dollars around the globe flooded into the U.S. Treasury market as a “safe haven” against growing uncertainty in Europe. Germany, France, and other European countries are seeing record levels of COVID-19 cases and have to decide on if and how to shut down parts of their economy.

At the same time, the European Central Bank (ECB) has not yet shown the willingness to add even more stimulus.

As a result of these bad times in Europe, Bond yields fell further into negative territory with the German 10-year Bund yield falling to -.64%, the lowest since March, and near all-time lows.

The decline in European Bond yields pressured our Treasury yields lower, from .79% on Monday to .69% on Thursday.

Not All Bonds Are Created Equal

The decline in Treasuries doesn’t mean lower home loan rates. Home loan rates come from the pricing of mortgage-backed securities — which didn’t improve this week along with Treasuries — so mortgage rates didn’t improve either.

It’s Not All Bad and Uncertain

Despite the growing uncertainty abroad, here in the U.S., we continue to see solid economic reports, strong consumer spending, and corporate earnings. And on top of that, a large stimulus package is coming. Along with a stimulus package comes three things Bonds don’t like:

  1. Added supply of Treasury notes and Bonds to be sold
  2. Increased inflation fears
  3. Aid to the U.S. economy

Bottom line: Rates are at all-time lows and may not be here for long.

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