Rates stay low as bond rally continues into 3rd session

Stocks rebounded a bit today after deep losses yesterday after S&P issued a negative outlook on the U.S.’s ability to meet its debt obligations. Treasury Secretary Tim Geithner tried to steady the ship today, saying “There’s a lot of confidence in the capacity of this economy to grow, to make sure that we can meet our commitments or obligations,” and this helped stocks remain positive (Dow +65, S&P +7.48)

Bonds are up slightly (FNMA 30yr 4% coupon +3 basis points, 10yr note +12 basis points), continuing a rally that began Friday that has helped rates remain very attractive. In addition to bonds as a safe haven trade, Gold continues to rally, touching $1500/oz today. Housing starts, a measure of construction activity, rebounded in March following February’s worst drop in 27 years. More on housing stats and the week’s rate outlook below.

Last month brought lots of dismal housing data for February, the worst of which was housing starts. March housing starts improved and were 7.2% above February, but were still 13.4% below March 2010.

The recent bond rally and stock drop suggests new trading ranges for both. The S&P 500 range is likely to trade within a 1285 to 1310 range—and is currently 1312.62. And the 10yr Note yield, which is a barometer for rate levels overall, is likely to trade within a 3.32% to 3.4% range—and is currently 3.36%

Based on this, rates could remain in their same range for the rest of this week, then rise a bit next week as bonds begin to sell ahead of a Fed meeting where we’re likely to see some easing off of the Quantitative Easing stance.