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Told You Rates Going UP...

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May 07, 2008 – Comments (10)

Looking for a safe place to hide has been preventing rates from going up, but they are heading up...

10-year treasuries going to 4%... 

10 Comments – Post Your Own

#1) On May 07, 2008 at 2:22 PM, dwot (75.87) wrote:

I am willing to bet leap year effect, one extra day in February, is the only thing that pushed housing up for February.  March is down slightly.

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#2) On May 07, 2008 at 3:22 PM, EScroogeJr (< 20) wrote:

dwot, can you explain to me why would mortgage rates have anythyng to do with bond yields? I thought it was like this: the Fed prints new money, lends it to the banks at 2%, banks lend it to homebuyers at 5-6%, and bonds are for suckers from Main Street who don't know the meaning of the word "inflation"?

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#3) On May 07, 2008 at 5:31 PM, Imperial1964 (97.74) wrote:

Yeah, and I had people telling me that mortgage rates would keep going down all Spring.

I'm wishin' I had the money to have bought those TLT Puts a few weeks ago!

What do you think of the odds that Treasury yields will go back down when this (bear-market) rally ends?

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#4) On May 07, 2008 at 7:27 PM, nuf2bdangrus (< 20) wrote:

The only reason I don't short the TLT is because I smell a bear market coming which will artificially push down rates.  But beware, they are headed up.

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#5) On May 07, 2008 at 10:01 PM, dwot (75.87) wrote:

EscroogeJr, there isn't a lot of evidence that the fed is printing money.  The increased money supply is coming from credit expansion, not printing.  Debt is debt, a bond is just another form of someone else's debt, treasuries are government debt.  They've all got to compete.  In Greenspan's declining interest rate environment bonds and other debt actually did better than the posted bought rate because as rates declined, the principal went up in price to make the yield decline to going rates.  Rates are low so you can't buy them and expect to see the principal go up more and sell them for a much higher yield anymore.  Furthermore, now you have a much higher chance of principal declining as rates rise, so you are truly stuck in these things.  That's going to require a better rate.  My 6% bond actually yield me about 8.5% because I sold it early and the buyer bought it at a 4.5% yield.

Imperial I can't see treasury yields going down again at all.  The thing that is keeping them as low as they are now is people wanting a safer place to part their money.  As soon as they want to invest again rates will have to go up to attract enough money.  I am Canadian.  I do not trust the American dollar because of the level of government and personal debt.  I think the dollar will decline further.  I think others that the government might want to borrow from might see it the way I do.  Foreign investors have already taken a 20% cut just on the exchange rate alone.  Others have taken huge hits of the triple A rated junk from the US and I suspect foreign investors are far more leery of US investments.  Debt is going up, people are going to demand more to loan.

nuf2bdangrus, I think the fear of default means rates go up.

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#6) On May 08, 2008 at 12:13 AM, EScroogeJr (< 20) wrote:

dwot, I'm aware of the miracle of fractional reserve banking, but it would seem to me that when banks are writing down their assets, this miracle should not just stop, but actually it should work in the opposite direction, so I cannot explain the 20% rate of M3 growth by anything other than the printing press. So I wouldn't buy any bonds for a 4.5% yield today. I would demand at least 7% for a 1-year bond and 8% for a 5-year bond. The 30-year bond I wouln't touch with a 30-foot pole, they will surely cheat you if you give them that much time.

 

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#7) On May 08, 2008 at 8:04 AM, DemonDoug (86.32) wrote:

Escrooge, the "printing press" would be M0, and we can extrapolate that to M1.  The M1 numbers from the fed are lower than they were 2 years ago.  M2 and M3 on the other hand are exploding (these are your loans and other debt instruments).  With no increase in M0 or M1, the only possibility left is that the Fed is continuing credit expansion (see: JPM-BSC deal).

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#8) On May 08, 2008 at 1:20 PM, EScroogeJr (< 20) wrote:

Demon, who cares if it's paper bills or "010010101010101011111001111" strings?

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#9) On May 08, 2008 at 7:18 PM, dwot (75.87) wrote:

EscroogeJr, that is a very important difference.  Credit expansion can disappear with credit contraction and I just can't see how credit contraction doesn't happen.

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#10) On May 08, 2008 at 7:40 PM, EScroogeJr (< 20) wrote:

Here's how. 

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=46543&t=01005914043115362412

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