Macro Monitor

One development that is currently dampening rent hikes is the increasing conversion of condo units to rental units, increasing the overall supply of rentals.

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Expect economy to slow the remainder of 2007, as a result of slower consumer spending as well as housing and auto woes. A 2008 recession is now a strong possibility. 

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Bond market targets were increased in July, based on rising global rates, strong global economy and expected inflation acceleration.

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Expect economic expansion to pick up a bit after weak first quarter, but a 2008 recession is a possibility. 

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Expect economic expansion to pick up a bit after weak first quarter, but a 2008 recession is a possibility. 

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We know we’re not the only ones to have noticed, but the old economic rules of thumb haven’t been working in the U.S. bond market for some time. 

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Expect economic expansion to slow down in the second half. A 2008 recession is a possibility.

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Since economic fundamentals are providing little help lately, an understanding of bond sentiment has become especially helpful.

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Still believe interest rates could be headed higher in 2007. While the economy does seem to be slowing and a recession is a possibility by early 2008, we expect the twelve month rate of inflation to accelerate in the second half of 2007.

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We see little fundamental appeal in bonds at current yield levels, but would not be surprised if yields still drifted a bit lower in the next month or two—if only because so many players are positioned for the opposite.

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We still believe interest rates are headed higher in 2007. Investors have sought the safety of U.S. Treasuries amid concerns of slowing economic growth and sub-prime jitters, sending ten year T-Note yields to their lowest level since December 2006.

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Inflation pressures have not yet abated and we believe that bond yields could tick up later this year, as those pressures eventually flow through to the CPI. 

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We believe interest rates are headed higher in 2007. Economy picked up some in Q4. Bond market sentiment still looks too optimistic.

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Despite the December correction, our 10-week Hines ratio (a modified put/call ratio) continues to show rampant speculation in T-bond futures call options, suggesting speculators are still betting on declining yields. 

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Expect economic recovery to pick up a little steam in early 2007, before slowing down in the second half. A 2008 recession is a possibility. 

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Bond yields continue to fall as economic reports have tended to be on the weak side. Massive global liquidity and the search for yield have also helped to push yields lower. We have been way off the mark with our predictions for higher rates.

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Our call for a bond market correction did not pan out in October, but yields did back up in early November as weak productivity and a surprisingly low unemployment rate were released.

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Bond market remains ahead of itself and is vulnerable to correction.

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Bond market seems to be anticipating three key developments: Fed’s stance could switch from tightening to easing, the economy is slowing significantly, and inflation is licked.

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Continue to project higher interest rates over the next six months, particularly longer maturities. Short rates could begin to decline by early-mid 2007, after Fed finishes tightening and economy slows.

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