Markets rise as investors rotate out of hot chip stocks

Dow shot up 402, advancers over decliners better than 3-1 & NAZ slid back 49.  The MLP index went up 2+ to the 283s & the REIT index rose 5+ to 381.  Junk bond funds inched higher & Treasuries had limited selling, allowing yields to edge higher (more below).  Oil was fractionally higher to the 81s & gold gained 12 to 2343.

Dow Jones Industrials 

Treasuries were muted entering the final week of Jun, with investors set to zero in on Fri's key inflation report.  The 10-year Treasury yield was flat at 4.259% & the 2-year Treasury yield was 1 basis point higher at 4.743%.  Yields & prices move in opposite directions & 1 basis point is equivalent to 0.01%.  With a summer interest rate cut from the Federal Reserve seemingly off the table, markets are hunting for more signs that Sep may be the month.  That may come in the form of Fri's personal consumption expenditures price index, the Fed's preferred inflation gauge.  The annual rate of price rises is expected to cool to 2.6% in May from 2.8% in Apr.  Traders are currently pricing in a roughly 66% chance of a Sep cut, CME's FedWatch tool showed.  A final reading will confirm the rate of first-qtr growth in the US economy, initially estimated at 1.6%.

Treasury yields are flat as investors gear up for inflation data

Prospective homebuyers in the US are keeping a close eye on the Federal Reserve as they eagerly await interest rate cuts that could offer relief from painfully high borrowing costs.  But there is another factor that could keep mortgage rates elevated in the coming months & years: the US national debt.  "As mortgage rates remain near 7%, a lot of attention is being paid to the timing of Federal Reserve interest rate cuts," said Lisa Sturtevant, Bright MLS chief economist.  "But a delay in Fed rate cuts is not the only reason mortgage rates will remain higher for longer. A record-high federal debt is also contributing to persistently high mortgage rates."  That's because the federal gov has to pay a massive amount of interest on the debt that it owes.  To do so, the gov will issue more Treasury bonds, which it needs to pay out a good return to attract investors, to raise capital, Sturtevant said.  But mortgage-backed securities are competing for the same investors & also need to offer a high rate of return.  "Consequently, the mortgage loans bundled up to form those mortgage-backed securities must have a relatively high interest rate attached to them," she added.  In its latest budget & economic outlook, the Congressional Budget Office projected that the nation's publicly held debt will surge from 99% of GDP at the end of 2024 to 122% of GDP by the end of 2034, the highest level ever recorded.  "Then it continues to rise," the report said.  The risk is that if the US continues to grow its debt at such an unsustainable rate, foreigners, including private investors & central banks, holding Treasury bonds will start to sell them down, Desmond Lachman, a senior fellow at the American Enterprise Institute, said.  Foreigners currently own about 30% of all outstanding Treasury securities, according to data from the Securities Industry & Financial Markets Association.  If foreigners were to sell their bonds, the US gov would likely struggle to finance itself & pay down the mounting interest costs on the debt.  Should that happen, the Federal Reserve would most likely step in & print the money, driving inflation & long-term interest rates higher, Lachman said.  "That'll send long-term interest rates high. Irrespective of what the Fed's doing at the short end, the long rates can go very high if you get a dollar crisis, and you get all these people dumping their bonds," he said.  "That's really where the risk is."

How the US national debt is keeping mortgage rates elevated

The DOJ said Boeing (BA), a Dow stock, broke the agreement by "failing to design, implement and enforce a compliance and ethics program to prevent and detect violations of the U.S. fraud laws throughout its operations." Under the 2021 agreement, the DOJ said it would not prosecute BA so long as it overhauled its compliance practices & submitted regular reports.  The company also agreed to pay $2.5B to settle the investigation.  BA declined to comment & the DOJ did not respond to a request for comment before publication.  The company previously said that it had received notice from the DOJ & added they "believe that we have honored the terms."  The DOJ has until Jul 7 to decide whether it will bring criminal charges against BA.  The report comes as the embattled company faces intense scrutiny from US prosecutors, regulators & lawmakers after a panel blew off 1 of its jets operated by Alaska Airlines (ALK)in early Jan.  BA stock rose 3.70.

US prosecutors reportedly recommend criminal charges against Boeing

Stocks opened higher & the bulls keep buying more stocks.  Dow is up 82 in Jun, & is not bothered by wars & war threats raging around the world.  Meanwhile gold remains near its record highs.