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

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).