The risk switch was firmly flicked to “off” on Tuesday afternoon, following weaker than expected US housing data. Much weaker than expected. Sales of existing homes slumped to their lowest level on record in July according to the National Association of Realtors.
Cue further buying of government bonds – via Reuters:
US TREASURIES EXTEND GAINS AFTER EXISTING HOME SALES DATA
US 10-YR TREASURY YIELD BREAKS BELOW 2.50 PCT, 30-YR BONDS UP 2 POINTS IN PRICE
GERMAN 10-YEAR GOVERNMENT BOND YIELD HITS RECORD LOW AT 2.125 PCT
Further selling of equities:
Felix Salmon at Reuters is not surprised by the reaction:
This number is the lowest that the NAR has ever reported, and I can see why it spooked the markets, sending 10-year Treasuries breaking through the 2.5% level: we’re seeing less housing market activity now than we were even during the depths of the crisis. According to the NAR, there were 4.94 million existing homes sold in 2007, 4.34 million sold in 2008, and 4.57 million sold in 2009. The latest annualized number in that series, for July 2010, is just 3.37 million. That’s a 26% fall from last year’s rate.
The number is so low that it looks like a statistical aberration: let’s hope it is. Because if it isn’t, the news is gruesome. It means that despite record-low mortgage rates, people aren’t able to buy houses: essentially all the benefit from those low rates is going to people who already own their homes and are taking the opportunity to refinance.
Meanwhile, the dollar has extended its decline against the yen:
Related link:
Worries about US recovery deepen – FT