Let’s talk 10 yr treasuries

[Eugene]

Low 10-year is the best cure we have for the housing recession. Everything is possible but it’s common sense for the Fed to try to keep it low.

There are two components of low 10-year: low inflation expectations and depressed stock market.

If you think 3.78 is seriously low, consider that 90’s Japan started higher than we did and they ended up with 10-year treasury rates in 1-2% for a decade.

[SD Realtor]

Agreed that the low 10 year is best for the housing recession however the best way to get the correction underway would be a higher 10 year. As long as the 10 year is low then there is some facet of affordability to the housing market. Actually 3.78 is pretty darn low if you look at the 10 year yield back to 1965. In fact the two lowest points we have had SINCE 1965 have been the yield a few weeks ago and the yield back in 2003.

I do not argue about the possibilities of a Japan style scenario that occurred in the 90s. However one thing I have never heard anyone explain is how we will continue to get our astronomical debt financed at 1-2% treasury yields.

The other thing that is somewhat “not fitting the data” in my opinion is the low inflation expectations. While the “official” measurement du jour of inflation does not indicate high inflation, anyone that has kids and has to buy alot of milk will tell you otherwise. Similarly nobody can honestly say with a straight face that you cannot count energy costs for inflation. So while there may be an official inflation number that is in check so to speak, the reality of the situation is that a measureable amount of personal income does indeed go to basic goods and services in comparison to the no to distant pass cost of those same goods and services.

Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.

Not sure if I agree but I guess we will see.

SD Realtor

[SD Realtor]

Agreed that the low 10 year is best for the housing recession however the best way to get the correction underway would be a higher 10 year. As long as the 10 year is low then there is some facet of affordability to the housing market. Actually 3.78 is pretty darn low if you look at the 10 year yield back to 1965. In fact the two lowest points we have had SINCE 1965 have been the yield a few weeks ago and the yield back in 2003.

I do not argue about the possibilities of a Japan style scenario that occurred in the 90s. However one thing I have never heard anyone explain is how we will continue to get our astronomical debt financed at 1-2% treasury yields.

The other thing that is somewhat “not fitting the data” in my opinion is the low inflation expectations. While the “official” measurement du jour of inflation does not indicate high inflation, anyone that has kids and has to buy alot of milk will tell you otherwise. Similarly nobody can honestly say with a straight face that you cannot count energy costs for inflation. So while there may be an official inflation number that is in check so to speak, the reality of the situation is that a measureable amount of personal income does indeed go to basic goods and services in comparison to the no to distant pass cost of those same goods and services.

Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.

Not sure if I agree but I guess we will see.

SD Realtor

[SD Realtor]

Agreed that the low 10 year is best for the housing recession however the best way to get the correction underway would be a higher 10 year. As long as the 10 year is low then there is some facet of affordability to the housing market. Actually 3.78 is pretty darn low if you look at the 10 year yield back to 1965. In fact the two lowest points we have had SINCE 1965 have been the yield a few weeks ago and the yield back in 2003.

I do not argue about the possibilities of a Japan style scenario that occurred in the 90s. However one thing I have never heard anyone explain is how we will continue to get our astronomical debt financed at 1-2% treasury yields.

The other thing that is somewhat “not fitting the data” in my opinion is the low inflation expectations. While the “official” measurement du jour of inflation does not indicate high inflation, anyone that has kids and has to buy alot of milk will tell you otherwise. Similarly nobody can honestly say with a straight face that you cannot count energy costs for inflation. So while there may be an official inflation number that is in check so to speak, the reality of the situation is that a measureable amount of personal income does indeed go to basic goods and services in comparison to the no to distant pass cost of those same goods and services.

Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.

Not sure if I agree but I guess we will see.

SD Realtor

[SD Realtor]

Agreed that the low 10 year is best for the housing recession however the best way to get the correction underway would be a higher 10 year. As long as the 10 year is low then there is some facet of affordability to the housing market. Actually 3.78 is pretty darn low if you look at the 10 year yield back to 1965. In fact the two lowest points we have had SINCE 1965 have been the yield a few weeks ago and the yield back in 2003.

I do not argue about the possibilities of a Japan style scenario that occurred in the 90s. However one thing I have never heard anyone explain is how we will continue to get our astronomical debt financed at 1-2% treasury yields.

The other thing that is somewhat “not fitting the data” in my opinion is the low inflation expectations. While the “official” measurement du jour of inflation does not indicate high inflation, anyone that has kids and has to buy alot of milk will tell you otherwise. Similarly nobody can honestly say with a straight face that you cannot count energy costs for inflation. So while there may be an official inflation number that is in check so to speak, the reality of the situation is that a measureable amount of personal income does indeed go to basic goods and services in comparison to the no to distant pass cost of those same goods and services.

Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.

Not sure if I agree but I guess we will see.

SD Realtor

[SD Realtor]

Agreed that the low 10 year is best for the housing recession however the best way to get the correction underway would be a higher 10 year. As long as the 10 year is low then there is some facet of affordability to the housing market. Actually 3.78 is pretty darn low if you look at the 10 year yield back to 1965. In fact the two lowest points we have had SINCE 1965 have been the yield a few weeks ago and the yield back in 2003.

I do not argue about the possibilities of a Japan style scenario that occurred in the 90s. However one thing I have never heard anyone explain is how we will continue to get our astronomical debt financed at 1-2% treasury yields.

The other thing that is somewhat “not fitting the data” in my opinion is the low inflation expectations. While the “official” measurement du jour of inflation does not indicate high inflation, anyone that has kids and has to buy alot of milk will tell you otherwise. Similarly nobody can honestly say with a straight face that you cannot count energy costs for inflation. So while there may be an official inflation number that is in check so to speak, the reality of the situation is that a measureable amount of personal income does indeed go to basic goods and services in comparison to the no to distant pass cost of those same goods and services.

Don’t get me wrong, Your point may be correct. Just to be sure though, you are saying that you believe the 10 year will hit levels that it basically has never hit before. Which would be awesome for housing. A 10 year at 1.5% puts a fixed rate conforming loan at 3%… Not bad at all. At the same time our debt will continue to be financed by foreign entities who will buy these instruments at that low of a yield.

Not sure if I agree but I guess we will see.

SD Realtor

[barnaby33]

Do I have to be a “saving bond trader” to think, or just to comment?

My guess based on copious amounts of reading is that the cost of debt is bottoming out right now. the FFR will go to zero and that still won’t stimulate things.

Congress will try one more major round of printing, ahem I mean inflating, to which the bond market will react very very negatively and that will be that. A negative reaction means that rates on treasuries will go up.

If in the very short term, say the next six months we have a trigger which sets off an extreme down movement in the stock market, you’ll see a lot of money flee to bonds, which will temporarily push down rates, but that won’t last if the treasury starts up the presses. Underlying the whole thesis is the idea that our govt is so borrowing dependent it will do nothing that negatively impacts its ability to borrow cheaply.

Josh

[barnaby33]

Do I have to be a “saving bond trader” to think, or just to comment?

My guess based on copious amounts of reading is that the cost of debt is bottoming out right now. the FFR will go to zero and that still won’t stimulate things.

Congress will try one more major round of printing, ahem I mean inflating, to which the bond market will react very very negatively and that will be that. A negative reaction means that rates on treasuries will go up.

If in the very short term, say the next six months we have a trigger which sets off an extreme down movement in the stock market, you’ll see a lot of money flee to bonds, which will temporarily push down rates, but that won’t last if the treasury starts up the presses. Underlying the whole thesis is the idea that our govt is so borrowing dependent it will do nothing that negatively impacts its ability to borrow cheaply.

Josh

[barnaby33]

Do I have to be a “saving bond trader” to think, or just to comment?

My guess based on copious amounts of reading is that the cost of debt is bottoming out right now. the FFR will go to zero and that still won’t stimulate things.

Congress will try one more major round of printing, ahem I mean inflating, to which the bond market will react very very negatively and that will be that. A negative reaction means that rates on treasuries will go up.

If in the very short term, say the next six months we have a trigger which sets off an extreme down movement in the stock market, you’ll see a lot of money flee to bonds, which will temporarily push down rates, but that won’t last if the treasury starts up the presses. Underlying the whole thesis is the idea that our govt is so borrowing dependent it will do nothing that negatively impacts its ability to borrow cheaply.

Josh

[barnaby33]

Do I have to be a “saving bond trader” to think, or just to comment?

My guess based on copious amounts of reading is that the cost of debt is bottoming out right now. the FFR will go to zero and that still won’t stimulate things.

Congress will try one more major round of printing, ahem I mean inflating, to which the bond market will react very very negatively and that will be that. A negative reaction means that rates on treasuries will go up.

If in the very short term, say the next six months we have a trigger which sets off an extreme down movement in the stock market, you’ll see a lot of money flee to bonds, which will temporarily push down rates, but that won’t last if the treasury starts up the presses. Underlying the whole thesis is the idea that our govt is so borrowing dependent it will do nothing that negatively impacts its ability to borrow cheaply.

Josh

[barnaby33]

Do I have to be a “saving bond trader” to think, or just to comment?

My guess based on copious amounts of reading is that the cost of debt is bottoming out right now. the FFR will go to zero and that still won’t stimulate things.

Congress will try one more major round of printing, ahem I mean inflating, to which the bond market will react very very negatively and that will be that. A negative reaction means that rates on treasuries will go up.

If in the very short term, say the next six months we have a trigger which sets off an extreme down movement in the stock market, you’ll see a lot of money flee to bonds, which will temporarily push down rates, but that won’t last if the treasury starts up the presses. Underlying the whole thesis is the idea that our govt is so borrowing dependent it will do nothing that negatively impacts its ability to borrow cheaply.

Josh

[Eugene]

In my view, markets are not moved by professional bond traders using sophisticated models but by regular people like you and me. People go with investments they expect to be most profitable. I don’t make my investment decisions based on what the government CPI tells me and neither do you. It’s as simple as: will I get better return from a 10-year dollar denominated US treasury bond at 3.78%, or a 10-year euro-denominated Italian treasury bond at 4.5%? or should I put my money into the stock market?

If I think that stock market has hit the bottom, I’ll sell my bonds, dollar yields and euro yields go up.

If I think that dollar will depreciate against euro because US government decides to print its way out of the problem unilaterally, I’ll sell US bonds and buy euro bonds, US bond yields go up, euro bond yields go down.

Since neither seems to be happening, most people probably think that stock market is still going down and that dollar:euro exchange rate won’t move far beyond 1.50. (Or maybe that it might but 0.7% yield difference does not reward them enough for the risk that it doesn’t. USD is still the world’s reserve currency so it benefits whenever theer’s risk involved. )

[Eugene]

In my view, markets are not moved by professional bond traders using sophisticated models but by regular people like you and me. People go with investments they expect to be most profitable. I don’t make my investment decisions based on what the government CPI tells me and neither do you. It’s as simple as: will I get better return from a 10-year dollar denominated US treasury bond at 3.78%, or a 10-year euro-denominated Italian treasury bond at 4.5%? or should I put my money into the stock market?

If I think that stock market has hit the bottom, I’ll sell my bonds, dollar yields and euro yields go up.

If I think that dollar will depreciate against euro because US government decides to print its way out of the problem unilaterally, I’ll sell US bonds and buy euro bonds, US bond yields go up, euro bond yields go down.

Since neither seems to be happening, most people probably think that stock market is still going down and that dollar:euro exchange rate won’t move far beyond 1.50. (Or maybe that it might but 0.7% yield difference does not reward them enough for the risk that it doesn’t. USD is still the world’s reserve currency so it benefits whenever theer’s risk involved. )

[Eugene]

In my view, markets are not moved by professional bond traders using sophisticated models but by regular people like you and me. People go with investments they expect to be most profitable. I don’t make my investment decisions based on what the government CPI tells me and neither do you. It’s as simple as: will I get better return from a 10-year dollar denominated US treasury bond at 3.78%, or a 10-year euro-denominated Italian treasury bond at 4.5%? or should I put my money into the stock market?

If I think that stock market has hit the bottom, I’ll sell my bonds, dollar yields and euro yields go up.

If I think that dollar will depreciate against euro because US government decides to print its way out of the problem unilaterally, I’ll sell US bonds and buy euro bonds, US bond yields go up, euro bond yields go down.

Since neither seems to be happening, most people probably think that stock market is still going down and that dollar:euro exchange rate won’t move far beyond 1.50. (Or maybe that it might but 0.7% yield difference does not reward them enough for the risk that it doesn’t. USD is still the world’s reserve currency so it benefits whenever theer’s risk involved. )

[Eugene]

In my view, markets are not moved by professional bond traders using sophisticated models but by regular people like you and me. People go with investments they expect to be most profitable. I don’t make my investment decisions based on what the government CPI tells me and neither do you. It’s as simple as: will I get better return from a 10-year dollar denominated US treasury bond at 3.78%, or a 10-year euro-denominated Italian treasury bond at 4.5%? or should I put my money into the stock market?

If I think that stock market has hit the bottom, I’ll sell my bonds, dollar yields and euro yields go up.

If I think that dollar will depreciate against euro because US government decides to print its way out of the problem unilaterally, I’ll sell US bonds and buy euro bonds, US bond yields go up, euro bond yields go down.

Since neither seems to be happening, most people probably think that stock market is still going down and that dollar:euro exchange rate won’t move far beyond 1.50. (Or maybe that it might but 0.7% yield difference does not reward them enough for the risk that it doesn’t. USD is still the world’s reserve currency so it benefits whenever theer’s risk involved. )

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