Real estate loan delinquencies could rock economy

Bond market may be the least of Fed's worries

Two weeks of rates-are-going-to-the-moon concluded in a disorderly reversal late this week. The 10-year T-note fell from its run to 4.8 percent almost to 4.6 percent, which in turn pulled mortgages back from the 6.5 percent brink, now close to 6.25 percent.

The bond market is operating in a Ben Bernanke vacuum. The Federal Reserve Board chairman has thus far not said anything about Fed policy (he will speak on Monday night, content optional), and in a void of that kind the bond market tends to lose its marbles -- descending into complacent snoozing, or panic at shadows. As of last week, deep in the latter, the market had convinced itself that the Fed would raise its rate to 5.5 percent or beyond (after a certain hike to 4.75 percent on March 28), and the 10-year T-note would move quickly through 5 percent.

That panic may turn out to be correct, but in the near term everyone brave or frightened enough to short-sell the bond market had done so by Wednesday. Surprisingly pleasant data then caught the shorts: CPI in February rose a meager .1 percent. Year-over-year CPI is still a tad high at 2.1 percent, but that includes the shock interval to $60 oil. There is some hint of rising wages, but also an off-the-bottom rise in newly unemployed. February industrial production rose .7 percent, but the whole gain came from utility production boosted by high energy prices and some cold weather.

Read the entire Lou Barnes article at Inman News