I speak in my newsletter (http://www.loanmine.com/ratewatch) each week about the technicals in order to provide an idea about long-term direction. A most significant event just occurred. The month-to-month tech upcrossed. This reflects the bullish nature of the Treasury market but also presages lower yields for another 12 months. We will mark an "official" end to the secular bear market the rule is that this tech must remain upcrossed at month's end.
They way we analyze the techs requires that the monthly tech remain upcrossed at the end of September for a secular bull market to be "officially" underway and we may well see a retrenchment because the week-to-week tech is overbought and about to top out. In short, the monthly may meander somewhat for the next month and a half but we are seeing the correct early warning signs for a 12-15 month bullish cycle in Treasuries.
A detailed look at the stochastic technical shows that we are upcrossing from the 3rd lowest K/D ever recorded. The implication is this: this bull market (at least from the point of view of the technicals) should take out the previous record low driving the 10-year yield to approximately 4.0%.
The implication for those of us in the mortgage business is a very busy 2007.
But...
Briefing.com quotes a survey of economists which says that 40% of them expect the Fed to increase rates in the first quarter of 2007. I will forego economist jokes and simply note that these folks are not convinced that inflation of tamed in the long term.
The Fed will express the same concerns those economists have - namely that inflation is Public Enemy #1 for not just Treasury yields and mortgage rates but for the economy in general. We are seeing commodity price relief but increases in wages have been greater this year than in the previous several years and that could keep inflation at a level of concern because wage increases stick while commodity prices increases do not. The last issue is one of those which is difficult to discuss in a public forum. It might be a bit difficult for a politician to get up and say, "I am really concerned for the economy because workers wages increases are getting a tad high.
Regarding Mortgages
Everyone who has an adjustable which is going to adjust before the end of 2007 should start paying attention with a mind to replacing it with a fixed rate loan during 2007.
Dick Lepre
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