Bond Yield Blues

[(former)FormerSanDiegan]

Yikes. The bond yield jumped dramatically today … up to 5.13% as of 10 am Pacific. Not good news for interest rates. That’s a move up from about 4.5 in March, a 13% move in three months. Ouch.
(But at least the yield curve is no longer inverted.)

It seems to me that given the recent weak economy, the bond markets may be over-reacting to the down side (in price, up-side in yield).
What do you think ?

[CAwireman]

FSD,

I have no idea what it means. Does it mean that CD rates will rise?

HiggyBaby

[CAwireman]

FSD,

I have no idea what it means. Does it mean that CD rates will rise?

HiggyBaby

[HereWeGo]

It means mortgage rates go up. It also means that corporate earnings are devalued with respect to the 10 year yield, a metric sometimes used in stock valuations. Rising long term rates may also brake the recent M&A craziness somewhat.

Ultimately it gives antsy investors a chance to sell, take a breather, then realize that fixed income yields are completely abysmal. I know this feeling from personal experience, after jumping to cash two weeks ago this past Wednesday. Eventually those taking money off the table will re-invest (as will I).

FSD – This looks like a new aspect of our old friend, “the conundrum”. The 10-year is selling off, for whatever reason (global competition for fixed income investors I imagine.)

[HereWeGo]

It means mortgage rates go up. It also means that corporate earnings are devalued with respect to the 10 year yield, a metric sometimes used in stock valuations. Rising long term rates may also brake the recent M&A craziness somewhat.

Ultimately it gives antsy investors a chance to sell, take a breather, then realize that fixed income yields are completely abysmal. I know this feeling from personal experience, after jumping to cash two weeks ago this past Wednesday. Eventually those taking money off the table will re-invest (as will I).

FSD – This looks like a new aspect of our old friend, “the conundrum”. The 10-year is selling off, for whatever reason (global competition for fixed income investors I imagine.)

[(former)FormerSanDiegan]

Hmmm… Bond Guru thinks this will be an ongoing trend.

http://money.cnn.com/2007/06/07/markets/bondcenter/gross/index.htm?postversion=2007060715

[(former)FormerSanDiegan]

Hmmm… Bond Guru thinks this will be an ongoing trend.

http://money.cnn.com/2007/06/07/markets/bondcenter/gross/index.htm?postversion=2007060715

[SD Realtor]

Yeah today was a serious jump. Moves on the bond market are REALLY important, especially for long term mortgage rates as well as Wall Street. I am a moron with how they affect Wall Street but with respect to real estate, it is easy to see.

A standard barometer or shall I say approximator (if there is such a term) is to take the 10 year yield and add about 1.25 to it to get an approximate value for a conforming 30 year fixed rate mortgage. What is important to note is that all basic fixed rate mortgages, and even the fixed portion of ARMs and other hybrids, are really based on this (and/or) the 30 year yield index. So as correctly pointed out earlier in the thread, this yield has been rising since about mid March, (I believe) as I am to lazy to look at a chart for the moment.

I believe that this can be the most probable catalyst to accelerate a more substantial decline in real estate pricing on top of all the other factors pushing the market down. It hits and hurts every sector in real estate, those in distress wishing to refinance, those new buyers have purchasing power reduced, it cuts across the entire strata. So yes if this bond market selloff continues, it is my belief that we will see a corresponding chunk down in sales and pricing rather then the slow and steady run down which I have been assuming. Right now it crossed 5, so how high it goes will determine the carnage.

SD Realtor

[SD Realtor]

Yeah today was a serious jump. Moves on the bond market are REALLY important, especially for long term mortgage rates as well as Wall Street. I am a moron with how they affect Wall Street but with respect to real estate, it is easy to see.

A standard barometer or shall I say approximator (if there is such a term) is to take the 10 year yield and add about 1.25 to it to get an approximate value for a conforming 30 year fixed rate mortgage. What is important to note is that all basic fixed rate mortgages, and even the fixed portion of ARMs and other hybrids, are really based on this (and/or) the 30 year yield index. So as correctly pointed out earlier in the thread, this yield has been rising since about mid March, (I believe) as I am to lazy to look at a chart for the moment.

I believe that this can be the most probable catalyst to accelerate a more substantial decline in real estate pricing on top of all the other factors pushing the market down. It hits and hurts every sector in real estate, those in distress wishing to refinance, those new buyers have purchasing power reduced, it cuts across the entire strata. So yes if this bond market selloff continues, it is my belief that we will see a corresponding chunk down in sales and pricing rather then the slow and steady run down which I have been assuming. Right now it crossed 5, so how high it goes will determine the carnage.

SD Realtor

[Anonymous]

FSD, aka ‘The Mad Monk’, this is the beginning of the end.

Make some money by getting into an inverse fund before the big one-day drop (which will happen within the next two months, I wager).

This is going to be an exciting ride!

[Anonymous]

FSD, aka ‘The Mad Monk’, this is the beginning of the end.

Make some money by getting into an inverse fund before the big one-day drop (which will happen within the next two months, I wager).

This is going to be an exciting ride!

[NotCranky]

This yield increase trend ,if their is one, is probably Just part of what will support Cyphire’s “it will happen over and over again so what don’t people get about “bust time ” post If any of your read it.” Paraphrased.

SDR:
I think you asked the question,where would you start buying 5,7,12% the bond market offerings. I posed that to a diversified investor friend of mine and he said 5 is fine, you can always buy more higher.He has other plans though..investment properties SFR, in the not so far distant future for what it’s worth!

SDR again:
Thanks for your postings. Since I have primarily been a “dabbler” in RE I learn a lot from you. I am working on my brokers license now. It appears that you absorb at least a tiny bit of what I have to say so that’s nice for me too.

[NotCranky]

This yield increase trend ,if their is one, is probably Just part of what will support Cyphire’s “it will happen over and over again so what don’t people get about “bust time ” post If any of your read it.” Paraphrased.

SDR:
I think you asked the question,where would you start buying 5,7,12% the bond market offerings. I posed that to a diversified investor friend of mine and he said 5 is fine, you can always buy more higher.He has other plans though..investment properties SFR, in the not so far distant future for what it’s worth!

SDR again:
Thanks for your postings. Since I have primarily been a “dabbler” in RE I learn a lot from you. I am working on my brokers license now. It appears that you absorb at least a tiny bit of what I have to say so that’s nice for me too.

[(former)FormerSanDiegan]

jg –

The bummer is that even my ETF that shorts the US dollar fell today.

I agree that it will definitely be a wild ride. If rates continue upward to 5.5 or 6% I would expect a nice haircut on stocks (and housing prices).

[(former)FormerSanDiegan]

jg –

The bummer is that even my ETF that shorts the US dollar fell today.

I agree that it will definitely be a wild ride. If rates continue upward to 5.5 or 6% I would expect a nice haircut on stocks (and housing prices).

[Author]

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