Treasury Price Bubble???

User Forum Topic
Submitted by DWCAP on February 6, 2008 - 12:50pm

http://www.signonsandiego.com/uniontrib/...

I noticed this in todays UT. I dont know if it has been posted up here yet, but I havnt seen it.

In reading the article it seemed dangerous for real estate if it is true. If 10/yr yeilds went back up to 5-6% as they were at the beginning of 2007, it could be disasterous (or good, IF you are chearing a terrible RE fall). Imagine what would happen to housing if interest rates were between 7-9% (5-6% 10yr + 2-2.5% markup)

I do have to say that I have been suprised how many people are buying treasuries when better returns are available in European or Asian bonds. The Fed has stopped worring about inflation completly, and they are willing to take 3.5%/yr when inflation is running atleast that high? I guess it is still better than the losses you would have taken sitting in countrywide or other banking/RE investment services, but I doubt many traders would keep their jobs let alone make huge bonus's on "Well, we only lost......"
I dont think high interest rates (>15%)are coming back, but even a return to where we were before the subprime crash could be a killer, gov boosts or not. Am I wrong?

‹ Writer's strike is over...all our troubles will disappear!!! Bank reserve requirements and the TAF ›
I'll follow the advice of
Submitted by Duck on February 6, 2008 - 5:17pm.

I'll follow the advice of the Pimco guy at the end of the story. They are the authority on bonds and have said since last spring that the Fed Funds rate was headed towards 3% or lower. The Fed and Washington DC in general are all over housing right now and will do whatever it takes to keep mortgage rates low until the majority of subprime mortgages get refi'd or froze and the inventory overhang of new homes gets worked through the system. The easiest solution is low mortgage rates. It might take another 2 or 3 years, but you can be sure this is the #1 economic concern and despite the overall incompetency of our government, when they set their minds to solving a single problem without partisanship, it usually gets done.

Duck, Actually I agree
Submitted by DWCAP on February 6, 2008 - 5:46pm.

Duck,
Actually I agree with you. I dont think the Gov is gonna let this one get away. If they think people vote with their checkbooks, just wait till the middle class starts loosing houses in mass numbers.
I actually posted this thinking there would be more of a response. PIMCO may be right, but stories like this tend to get people talking and even small changes in perception can move markets.
I really think the FED is gonna squash rates until housing heals, the question is, what kinda price do we pay 3-5 or maybe even 10 years from now? Inflation builds, returns are worse, rates are raised, and housing is hurting again. A return to the 6.5% rates we were paying 1 year ago would be a knife in the heart, so how are we ever gonna get outa this mess? Remember inflation only really counts if it is wage inflation, and we havnt been seein too much of that lately.

You guys have to realize
Submitted by capeman on February 6, 2008 - 8:33pm.

You guys have to realize that the Fed. and Gov't don't set interest rates especially mortgage rates. Those are based on the bond market (10 yr) and if the bond market doesn't like what the Fed is doing and treasuries rise then the Fed loses it's power. Liquidity is being thrown into the market as commercial credit is drying up. If that locks then the bond rates explode as will mortgage rates. We could very well be close to that point right now.

People losing their houses
Submitted by Arty on February 6, 2008 - 9:33pm.

People losing their houses is not because of the interest rate. They can't afford the house in the first place PERIOD. The only way to fix the problem is to have a mild controlled recession while let the housing bubble deflate. However, it is far more difficult to do than simply saying it.

True but the direction
Submitted by capeman on February 6, 2008 - 9:43pm.

True but the direction interest rates go will affect the rate of price deflation just as job losses and tightened lending standards will. Until all of those issues are fully addressed in the markets we won't see bottom.

did the bubble just pop?
Submitted by drunkle on February 7, 2008 - 4:07pm.

did the bubble just pop? check the action on the 20 year today, something to do with an auction being bust...

also, moody's downgrade of sca just hit...

Found something about
Submitted by Andy on February 7, 2008 - 5:35pm.

Found something about treasuries on Bloomberg:
http://www.bloomberg.com/apps/news?pid=2...

Here are a couple excerpts:

The auction yield on the new long bond was the lowest since regular sales of the security began in 1977, according to Steve Meyerhardt, an official in the Bureau of the Public Debt in Washington.

This is a massive boycott,'' said George Goncalves, chief Treasury and agency debt strategist in New York at Morgan Stanley, one of the 20 primary government securities dealers that are required to bid at Treasury auctions.