While Brexit has created a healthy dose of financial heartburn, especially so in foreign markets, investors continue to pour money into bonds, especially those issued here in the States. The Target Inflation Ratebenchmark 10 year U.S. Treasury is continuing to see yields fall as prices on the 10-year continue to rise as investors are still seeking a safe haven due to the uncertain future of the European Union. We’re not alone in bond rallies, either. Germany in fact just announced their 10-year bund will yield negative rates, the first time this has happened. No one really thinks that’s going to happen here in the States but that’s not keeping investors away from their own bond buying binge.

 

This rush to safety continues in light of recent stock gains on Wall Street. Both the Dow and the S&P 500 closed at record highs on Tuesday and are holding their gains so far this week. Mortgage bonds are also the beneficiaries of the flight to safety as the 30-year mortgage rate for real estate investors financing residential property fell to a three-year low this week.

Very few analysts now see the Fed doing anything to interest rates at least until next year. Brexit took most by surprise and equities don’t like surprises, to the benefit of bonds. That’s going to keep the Prime Rate right where it is at least until 2017, that’s the common wisdom anyway. Earnings season began this week and we’ll see quarterly reports with an eye on financials. The cost of funds is still very low for banks and as stocks continue to make gains and businesses see a more rosy outlook the spread is still very healthy for lenders and rates still low for investors. If Wall Street’s confidence continues, we can expect rates to rise as well. Don’t expect a Fed move in 2016 but investors will expect one soon and the bond selloff will begin.