“The labor market has continued to improve,” Bernanke said at his June 19 press conference. “Job gains, along with the strengthening housing market, have in turn contributed to increases in consumer confidence and supported household spending.”
Housing Rally
Higher market rates triggered by Bernanke’s comments may hamper further improvements in the economy. The average rate for 30-year home loans has jumped to 4.46 percent as of June 27 from 3.40 percent on April 25, according to Freddie Mac.
“Rates going higher clearly will impact growth here,” Michael Lillard, the chief investment officer at the fixed income unit of Prudential Financial Inc. in Newark, New Jersey, said in a June 26 interview.
“Housing is one of your most sensitive sectors to interest rates and the mortgage rate has moved a lot, not just because of Treasuries but also because mortgage spreads have widened as well,” said Lillard, who helps manage more than $400 billion of bonds. “I think you begin to see it take some of the steam out of the housing rally.”
U.S. gross domestic product expanded at a revised 1.8 percent annualized rate from January through March, down from a prior estimate of 2.4 percent, the Commerce Department said June 26. The economy will grow 1.9 percent for 2013, according to the median forecast of 86 economists in a Bloomberg News survey in June, down from last year’s 2.2 percent increase.
Buying Opportunity
Bond bulls see the higher rates as a buying opportunity.
“July will not be the same type of month” as June, Jeffrey Gundlach, chief investment officer of Los Angeles-based DoubleLine, said in a June 27 webcast for investors. “There are profits to be made in the bond market between now and the end of the year.”
Ten-year Treasury yields may fall by 25 basis points, Bill Gross, manager of the Pimco Total Return fund, the world’s biggest bond fund, said in a Bloomberg Radio interview with Tom Keene on June 27.