Rates as of 0500 GMT

Market Recap

Conflicting signs.

On the one hand, investors were encouraged about the US economy yesterday thanks to higherthanexpected US housing starts. As the table above shows, they were expected to fall but instead rose slightly to the highest level since 2006.

The US housing market seemed to have shifted into a new equilibrium that depended on low interest rates, which made it likely that the Feds tightening would cause the market to crash and send the US economy into recession. Yesterdays figure gives hope that housing may be shifting back into the previous preGlobal Financial Crisis state, when demand depended less on low interest rates. That reduces the odds that the Feds tightening will send the US economy crashing.

What surprises me though is just how low housing starts are. While they are above the longterm average of a 1.43mn annual pace, they are still well below the 2.27mn peak pace of 2006 not to mention the alltime peak of 2.48mn in 1973, when the population of the US was around 215mn vs over 330mn today. This explains why housing is so expensive in the US. It also suggests that starts can continue to rise if builders can find workers and materials a big if.

US yields moved sharply higher as a result. US 30year yields rose 5.4 bps to poke their nose over 3.0 intraday for the first time since early 2019. Tenyear German Bunds rose to 0.91, the highest since 2015. They were negative as recently as March 7.

Without a…