But I am half in Bugs camp too.
There are two problems:
First- the cow shit problem- customers won’t buy until they are confident that cow dung is not an ingredient. When confidence in the ingredidents is still low, the price needs to such that you don’t care what is in them (this is how hot dogs get sold). In other words, higher interest rates provide investors enough return that they ignore the lingering stench. This risk premium will go away in time as people gain confidence in the ingredients again.
Second is the home pricing problems- to date, mortgage investors have assumed stable or growing home prices. Mortgage backed bonds are a much worse risk when prices are falling, so again higher interest rates are needed to make them attractive. This “falling price premium” may be with us for a while.
