Monday, May 4, 2009

Possible Rate Retracement

Rates have had a nice runup over the past several months but may be due for a little backing and filling. A logical place for the 10 year rate to fall to is the 3.04% level. Notice how this point meets the rising 4 week moving average. It also marks the previous closing high set several months ago.

Rates have the potential to decline even more depending on how the market reacts to the bank stress test results and the much awaited unemployment report. We all know the numbers aren't going to be pretty. The unemployment number has the potential to really rock the world though since a major assumption in the stress test review is the future unemployment rate. Should the unemployment number indicate that the government's worst case unemployment scenario is too conservative, rates could drop significantly.

Until further evidence shows that rates will again continue in their major decline, I'm still looking for much higher rates in the future.

One must try to understand what the Fed might be thinking as well. Their note and bond purchases have not met the market's expectations. Does the Fed think that rates will fall on their own? Or are they looking for higher levels to sell at?

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