THE BASIS POINT

Fundamentals 9/6: Rate Lows Hold To Open Week

ISM Service Sector
-Index for August was 53.3 vs. 52.7 in July.
-Readings above 50 signal expansion in non-manufacturing sectors
-Ten of the 18 service sectors reported growth.
-U.S. service sector employs about 4 of every 5 U.S. workers.
-Prices spiked, continuing a 25mo trend
Full report

Last Friday the yield on the 10-year Treasury Note closed below 2% for the first time ever. One day just after the Lehman bankruptcy when fear was at its highest the 10-year also got below 2.00% intraday but closed at 2.03%. Recall that our technical forecast a month ago indicated that the 30 year yield could go to 3.0% and the 10-year to 1.46%. Those numbers are mind-boggling and are not likely to happen without some event such as a default by some Eurozone nation. What we are looking at is extremely serious. That 1.46% (or even 1.75%) yield is not likely to be reached without a major equity selloff. What has collapsed is confidence in the ability of the U.S. government to accomplish anything beneficial either through fiscal or monetary policy. The fact is this: the mortgage mess and bank liquidity crisis which started in 2008 left the consumer either unemployed or overleverged. The only thing which will cure this is time – lots of time. Here’s the September Rate Outlook.