How Bond Traders Hold Us Back

Besides, there are some good reasons why long rates haven't budged. They fell sharply last year in anticipation of a weaker economy. The President's tax cut had a price too: it leaves less surplus to pay down the nation's debt, a condition that puts upward pressure on yields. Inflation--the scourge of fixed incomes--has doubled from its low 1.6% annual rate 18 months ago, lending heft to bond-pit suspicions that a recovery has taken root.

For long rates to be chopped now, something would have to shoot holes in the perception that the economy has hit bottom. More bad news from manufacturers? Nah, that sector is already comatose. But if housing suddenly stumbles, the bond market might rethink all this nascent-recovery stuff and finally give us the lower long-term rates that could make a difference.

It isn't out of the question. When stocks go south, housing feels it a year or so later. We're there. Stumbling retail sales indicate consumers are losing faith in a rebound and are reining in spending--a possible precursor to slower home sales. Already, the high end has turned sluggish. Where does that leave you? With the stock market in a funk, a home is still a great investment. Mortgage interest is tax deductible. Capital gains are often tax free. With today's easy home-equity lines, investment gains in a house are as liquid as those from a stock or bond. Don't look for home prices to crack in a big way--just enough so that long rates finally ease and trigger another refinancing wave that should underpin the economy. If, that is, bond traders finally get it.

See time.com/personal for more on mortgage rates. See Dan Tuesdays on cnnfn at 2:15 p.m. E.T.