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Market Wrap - US Bond Market & Interest Rates

Interest-Rates / Forecasts & Technical Analysis Feb 06, 2007 - 12:15 AM

Two year Treasury yields lost 5 bps to close at 4.93%. Both the five and ten year Treasury yields fell 5 bps to 4.82%. Long-bond yields were also down 5 bps to 4.92%. The spread between the two year and the ten year closed the week inverted 11 basis points.

The Fed still has its coveted inverted yield curve - where short term rates are higher then long term rates. All inverted yield curves of the past have always been followed by a recession in the economy. Caveat Emptor.

Prior to this past week's decline in interest rates, rates had been steadily rising. It remains to be seen which way the trend of rates is established.

Federal Reserve foreign holdings of Treasury debt were up a considerable $10.8 billion dollars last week, setting another record of $1.79 Trillion. Custodial holdings are up 16.2% for the year - not an inconsiderable amount.

The first chart below is of the ten year yields (interest rates). It shows the recent breakout in rates that has now been reversed, giving a false breakout of higher rates - at least for the time being. The jury is still out, however. Short term is one thing and long term another.

Next we have the 30 Year Long Bond Price. This is the standard for mortgage rates and other long term debt. The yield on the long bond was down 5 basis points for the week.

However, as the chart indicates: prices are headed downward toward the lower trend line that represents support. If the lower trend line is broken there will be trouble in paper fiat land. Mr. Mortgage will not be happy, nor Mrs. Mortgage as well.

Lastly we note on the interest rate front that although Treasury Yields were down - mortgage rates went up. Not a very good sign. Thirty year fixed mortgage rates were up a considerable 9 bps last week to 6.34%.

Fifteen year fixed mortgage rates were up 8 bps to 6.06%, while one year adjustable rates gained 5 bps to 5.54%. The Mortgage Bankers Association Purchase Applications Index gained 1.3% this week, although they are down 7.1% for the year.

Douglas V. Gnazzo
Honest Money Gold & Silver Report

Douglas V. Gnazzo is the retired CEO of New England Renovation LLC, a historical restoration contractor that specialized in the restoration of older buildings and vintage historic landmarks. Mr. Gnazzo writes for numerous websites, and his work appears both here and abroad. Just recently, he was honored by being chosen as a Foundation Scholar for the Foundation of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly, Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

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