This week’s article is Rising Interest Rates Finally Start to Matter by Jack McHugh at The Big Picture. Following is a small excerpt:

Good Evening: After months of seeing equities get most of the headlines, the Treasury market has elbowed its way back into the spotlight during the past week or so. Today this attention reached a fever pitch, as yet another steep drop in long dated government bond prices finally started to impact not only the wire services but also the stock market. Until today, equity investors viewed the Fed’s attempts to control various interest rates with little interest and even less concern. No more. Rising rates of interest for Uncle Sam mean a higher mortgage rates, a rising budget deficit, and a threat to any nascent recovery in the housing market. In short, the green shoots are at risk of being trampled, and investment decisions will only get tougher as 2009 progresses. Investors might be best served by investments that benefit from uncertainty itself.

Wednesday started innocently enough, with the only economic data points more or less matching expectations. Mortgage purchase applications rose a tad, though refinance applications did take a tumble during the latest reporting week. This piece of news was taken as no more a threat than North Korea’s announcement that it would henceforth ignore the 1953 armistice ending the Korean war. As for equities, Monsanto disappointed its shareholders with a lower full year outlook, and GM announced that its debt for equity swap proposal was doomed. That GM is now likely to enter some form of bankruptcy should come as a surprise only to those investors who willingly suspend their disbelief, and I believe the GM news had little, if any, effect on today’s outcome.

Analysts and economists also tried to dismiss the existing home sales data as unsurprising, but a peek beneath the surface reveals otherwise. Though existing sales rose a bit and just about matched consensus expectations, the source of the small uptick in volume was troubling. As BAC-MER points out in their piece below, volumes were boosted by foreclosures, and the supply of unsold homes actually rose. More worrisome, at least for Jim Cramer and others who expect a bottom in housing any day now, is that the April figures were flattered by low mortgage rates. The huge drop in bond prices over the past week and the accompanying rise in mortgage interest rates bodes ill for future home demand. BAC-MER economist, Sheryl King, says, “So far in May the numbers suggest the upturn in sales has stalled-out as, mortgage rates have edged higher and mortgage applications for purchase are down 2.4% compared to the April average”.(source: BAC-MER piece below)

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Runner-ups:
- Government Taps Bailout Contractors With Conflicts of Interest
- JPMorgan’s WaMu Windfall Turns Bad Loans Into Income
- Exploding debt threatens America
- Rand, World’s Best Currency, May Gain 4%: Technical Analysis

Related posts from the blog:

• Article of the week (14/2009): My Manhattan Project
• Article of the week (13/2009): The Big Takeover
• Article of the week (20/2009): My Personal Credit Crisis
• Article of the week (25/2009): Have stock markets run away from reality?
• Article of the week (23/2009): The Crisis and How to Deal with It