It's All About Rates

01/03/2014 12:01 am EST

Focus: BONDS

Jim Jubak

Founder and Editor, JubakPicks.com

As we head into the New Year, the focus will be on rates, says MoneyShow's Jim Jubak, and he is watching the data on one sector in particular.

For the week ahead, as we move into 2014, I think the thing to watch is yields, yields, and more yields. It's pretty clear that the market is nervous about what's going to happen now that the Fed has decided to taper off its $85 billion in monthly purchases of treasuries and mortgage backed securities. We've seen the yield on ten-year treasuries go from 2.8% before that December 18 decision, to about 3.02% at the very end of December.

Now, the nervousness isn't really about the increase in rates, it's about the question of the uncertainty about how much higher rates, or how much of an increase in rates, will slow the economy. Therefore, you're getting a lot of attention being paid to the housing numbers, because the housing sector is one of the most interest rate-sensitive parts of the economy, so you're seeing people try to extrapolate the answer about the economy, as a whole, from figures about different pieces of the housing industry.

For example, on December 30, we had what's called pending home sales. This is a number that tracks the number of houses that are in contract to be bought or sold, but where the deal hasn't actually closed yet. When it's closed, it gets put into a different category of sales numbers. Pending, is kind of, a leading indicator for a leading indicator. In November, the number of pending home sales actually went up by 0.2%. October was revised downward to a 1.2% drop. The November number is one way of looking at it. Good news, because it's the first time in six months that you've actually had a positive number. On the other hand, the consensus of economists surveyed by Bloomberg, was that we're going to see a—this is a median number—we're going to see a 1% increase in November, so, in that sense, November was disappointing.

The markets were looked at and said, “Oh, disappointing,” but really, not a very big number, so we didn't do anything with it. Everybody is focused on these numbers, trying to figure out really what we're getting going forward. The problem, of course, is that these numbers are all really very seasonally sensitive. You've got data going from all kinds of different directions, and single points aren't going to tell you much of anything, but what it really does tell you is where the market's attention is focused, and what the market is nervous about.

Right now, with stocks still at an all-time high from the S&P and the Dow, you've got a lot of worry about whether what the Fed is doing to remove some stimulus—a very amount, $10 billion a month out of these purchases—might do to economic growth, not because anyone knows, but because no one knows and that's why people are nervous.

This is Jim Jubak for the moneyshow.com video network.

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