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The Bond Column

Treasuries Slip in Holiday-Shortened Week
Updated: 2016-11-28, 08:55:50 ET
Analyst: David Kelland

Treasury yields moved higher again thisweek albeit at a slower pace than they did in the initial aftermath of DonaldTrump's victory in the November 8 U.S. election. The U.S. economic data forOctober continued to show strength with the notable exception of New Home Sales(563K SAAR vs. consensus 587K, September revised down to 574K from593K). Durable goods orders grew by 4.8% m/m vs. the consensus of1.1%.

One big question that the U.S. economywill face if these higher interest rates are sustained is in the housingmarket. The average 30-year fixed mortgage rate is up to 4.13% from 3.99% oneweek ago and commercial real estate will face similar headwinds. If wage growthcontinues to accelerate (0.4% m/m average hourly earnings growth in October),higher incomes will support higher home prices. If they do not, higher monthlypayments may lead homebuyers to hesitate in driving strong year-on-year gainsin home prices.

The OPEC supply-cut saga continued thisweek but ended on a doubtful note as Saudi Arabia said that it would notparticipate in talks with non-OPEC producers on Monday. WTI crude traded down4.17% to $45.96/bbl. on Friday. There are some serious headwinds to higher oilprices. Royal Dutch Shell said recently that peak oil demand could come in aslittle as five years. A stronger U.S. dollar means that foreigncurrency-denominated buyers will not be able to push prices higher in USD.There was also a discovery of 20 billion barrels in the Permian Basin earlierthis month. That field may not be currently profitable but it represents huge overhead volume if prices were totrack higher.