This week, Treasury will auction $72B of notes and bonds beginning Tuesday. The State of the Union is on Tuesday evening. Key economic data hits on Wednesday through Friday: January retail sales, weekly claims, January industrial production and factory use. The equity markets continue to hold and edge higher; as long as stock indexes continue to resist selling, the bond and mortgage markets will remain in a narrow range with little change in interest rates. The 10-year note has solid support when its yield climbs to the 2.00% area; moving above it on a couple of occasions recently but no follow-through. There has been virtually no change in US interest rates since the end of January.
President Obama’s State of the Union address, according to reports, will unleash a number of executive decisions on health care and a number of programs. Congress and the Administration face the March 1st deadline on the sequestration; so far nothing is happening, at least nothing that has captured much attention. Meanwhile, according to the WSJ article, businesses are becoming increasingly concerned about the strength of the economy going forward in 2013. Q4 2012 advance GDP was -0.1%; however, we expect the preliminary report on the 28th of this month will be revised to show some growth. The Fed will continue to buy $85B of MBSs ($40B) and treasuries each month. With the economy still just stumbling along and Obama Care beginning to bite on small businesses, and the debt issues plaguing recovery, we are holding our view that interest rates will not increase much, possibly 2.25% by the end of the year. Meantime, until there is selling in the stock market rates won’t decline.