Last week, Steroid-pumped Stocks kicked sand in the face of the 97-pound weakling Bond market, and home loan rates worsened by about .125% across the board. What happened?
Here's the story - money invested out in the financial markets generally flows back and forth between Stocks and Bonds. This means that when Stocks are doing well, money is flowing out of Bonds as investors move their "safe" holdings into what they hope are winning positions in the Stock market. On the other hand, when the Stock market takes a turn for the worse, money flows right back out of Stocks and right back over into "safe haven" Bonds. This happens over and over, and is true on a large and small scale; from individual investors on up to massive institutional investors...the mindset is exactly the same.
As the Stock market has rocketed higher in recent days, investors want to get in on the action, and that money has to come from somewhere...and that's right, it's coming from Bonds. And when money is pulled out of Bonds, it means that Bond prices worsen, and home loan rates move higher like they did last week.
What should have helped Bonds was a friendly Consumer Price Index report, showing that inflation appears to be moderating. Inflation is the arch-enemy of Bonds, which deliver an investor a fixed return - the value of which is eroded by inflation. But just like the 97-pound weaklings wimpy friend at the beach, the good news on inflation wasn't strong enough to help Bonds or home loan rates regain their legs.
SPEAKING OF THE BEACH...EVER SEE THOSE DUDES GOING AROUND WITH METAL DETECTORS, AND WONDER JUST WHAT THEY'RE UP TO? MIGHT BE SEEKING OLD WAR RELICS, OR PERHAPS A VALUABLE COIN - BUT YOU WON'T NEED A MACHINE TO FIND A NEW COIN THAT'S WORTH ROUGHLY 50 TIMES IT'S FACE VALUE DUE TO A MINT ERROR. IT COULD BE IN YOUR POCKET RIGHT NOW, SO DON'T MISS THIS WEEK'S MORTGAGE MARKET VIEW.
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