"Existing Home Sales Spike in July," blares the headline from the National Association of Realtors. The organization's enthusiasm is understandable as the latest data shows the pace of home buying in July not only came in better than expected and at the best level since November 2009, but more importantly rose in the face of sharply higher borrowing costs.
Beyond the 17% annual gain in sales, the NAR also reports that the median price for used homes rose nearly 14% to to $213,500, marking the 17th consecutive month of annualized gains, and leaves the benchmark just 7% shy of its all-time high set in July 2006.
In the wake of this evidence, and the certainty that the Fed will soon began to reel in its $1 trillion annual asset purchase program (perhaps as early as next month), a huge obstacle in the way of higher interest rates has just been moved.
"Certainly on a longer-term basis we think yields can push considerably higher," says Dan Wantrobski, director of technical research at Janney Capital Markets in the attached video. "A 10-year note yield north of three percent, by next year pushing into the high-threes, would equate into a very good trade."
Specifically, he picks out two ETFs as offering the best weekly charts to play this rising rate theme; the ProShares Short 20+ Year Treasury (TBF) and the ProShares Ultra Short 20+ Year Treasury (TBT). The two funds are designed to move in the opposite direction of bond prices, which is to say they go up when interest rates go up, and decline when interest rates fall.
"Irrespective of what happens with tapering over the short run, longer term our projections are for rates to move higher since we are in a new reflationary bull market cycle," a scenario he says demands a play on higher interest rates.
To be fair, as strong as the July housing data was, even the NAR says the unexpected jump may have been partly due to people who were finally motivated to jump off the sidelines and act. Even PIMCO's Bill Gross has also said he expects the year-end yield on the 10-year Treasury to be back below two percent again. Given the hand-braking effect that rising yields will have on an already unsteady economy, Gross believes (as expressed on Twitter) that the end of the Fed's Quantitative Easing will mark the end of the bull market for stocks, and in turn, spark a flight to safety.
While most pros would hesitate to take the opposite side of a trade against the world's largest fund manager, Wantrobski sticks to his call for a ''slow and gradual rise (in rates) over a long period of time."
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