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Treasury Yield Falls to Four-Year Low, Lower Mortgage Rates are Boosting Homebuilders

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The plunge in global bond yields continues. Yesterday's statement from the Bank of England of its intention to lower rates sometime this summer pushed the British 2-year yield into negative territory for the first time, and its 10-Year to another record low further below 1%. Treasury yields continue to follow foreign yields lower. Chart 1 shows the 10-Year Treasury Yield falling again this morning and coming dangerously close to its 2012 closing low near 1.40%. The drop in yields is boosting dividend-paying stocks like consumer staples, telecom, utilities, and REITs. Falling yields are also boosting gold which is a non-yielding asset that attracts money when yields are low and falling. Falling yields may also be responsible for recent buying of higher-yielding emerging markets. Homebuilders are also getting a lift.

Mortgage rates, which are tied to the direction of bond yields, are also falling. That's good news for homebuyers and homebuilders. Charts reflect that optimism. Chart 1 shows the U.S. Home Construction iShares (ITB) moving up close to a new high for the year after bouncing off chart support along its May low and 200-day average. It's also back above both moving average lines. The ITB/SPX ratio (top of chart) is also close to a new 2016 high. Chart 3 shows KB Home (KBH) already trading at a 10-month high. Other homebuilders nearing upside breakouts are PulteGroup (PHM) and DR Horton (DHI).

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