Posts filed under “Fixed Income/Interest Rates”

If Houses Traded Like Bonds

As the 10-year Treasury yield approaches 3 percent let’s take a look at the recent spike in mortgage rates and its micro impact on the housing market and average home buyer.

The chart below shows 30-year fixed mortgage rates have increased 122 basis points since early May.  This translates into a 17 percent increase in the monthly payment on a $300K mortgage, for example from $1,313 to $1,538 per month (see Matrix).

Though recent home sales have had a high proportion of cash buyers the monthly mortgage nut does still matter for most buyers and remains one, if not, the biggest constraint on new purchases and housing price appreciation.   For example, the $1,313 monthly payment, which supported a $300K mortgage at 3.30 percent in early May, for example, now only qualifies for a $255K mortgage.

If homes traded like bonds, which are the sum of discounted coupon and principal payments, the spike in interest rates since early May would have resulted in a 15 percent fall home prices.   This surely is one of the reasons why the homebuilder stocks have been hit hard over the past few months.

In the past, innovation and financially engineered mortgage products such as option ARMS have limited the impact rising rates have had the housing market.   Those daze, we think, are over.  Maybe.


Click on matrix to enlarge and for better resolution.

(click here it chart and table are not observable)

Category: Fixed Income/Interest Rates, Real Estate

Assert a Principle? Measure Market Risk?

Assert a Principle? Measure Market Risk? David R. Kotok Cumberland Advisors September 5, 2013     “Assert a principle,” says our Secretary of State, John Kerry. So now we find ourselves in the throes of an unresolved national debate over whether the US should launch cruise missiles at unknown targets in Syria in order to…Read More

Category: Fixed Income/Interest Rates, Think Tank, War/Defense

US 10 Year, CPI, and Annual % Change, 1791-Present

Here is a historical look at the US 10 Yr and CPI with Annual Percentage Change: Click to enlarge ~~~ ~~~ Under normal circumstances, interest rates will rise along with inflation. They more or less move in lock step. But ZIRP and QE means that these are not normal times. Thus, the FED’s intervention means…Read More

Category: Federal Reserve, Fixed Income/Interest Rates

Proof the Bond Bull is Over: PIMCO Selling Hedge Funds

If you have been seeking unequivocal proof that the 30 year bull market for bonds is over, look no further than this WSJ headline: Bond-King Pimco Plans to Push ‘Alternative Funds’. Think about what this means: From 1980 to 2013, PIMCO enjoyed three decades of rising bond prices — read falling interest rates — and…Read More

Category: Fixed Income/Interest Rates, Hedge Funds, Investing

What Do Outsized Bond Yield % Increases Mean?

Click to enlarge Source:: Société Générale   Nice chart from Andrew Lapthorne of Société Générale describing the spike over the past few months in bond yields. Lapthorne adds: “Not that this seems to be worrying investors too much: equity markets have proven reasonably robust in the face of such rising yields and equity volatility continues…Read More

Category: Fixed Income/Interest Rates

Broken Relationship: SPX Yield vs 10 Year

Low bond yields have in the past been bad, not good, for equity returns

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Category: Dividends, Fixed Income/Interest Rates, Video

The Deleveraging American Consumer?

click for ginormous graphic Source: WSJ     I love this giant graphic from this morning’s WSJ — it gives us the 30,000 foot view of consumer debt here in the USA. Despite low rates — or is it because of them? — American consumers have seen their debt loads fall to the lowest levels…Read More

Category: Consumer Spending, Credit, Fixed Income/Interest Rates

A Generational Selling Opportunity for the U.S. Long Bond

From James O’Shaugnessy, author of What Works on Wall Street, Best-Performing Investment Strategies:  

Category: Books, Fixed Income/Interest Rates, Think Tank

Barclays: Detroit Chapter 9 Begins

Zero Hedge embedded this Barclays piece about the Detroit Bankruptcy. I don’t agree with all of it, but it is a worthwhile read, and until they take it down, here it is.     Barclays Municipal Research Detroit – Chapter 9 Begins

Category: Fixed Income/Interest Rates, Legal, Think Tank

The Recent Bond Market Selloff in Historical Perspective

The Recent Bond Market Selloff in Historical Perspective Tobias Adrian and Michael Fleming Liberty Street Economics August 05, 2013     Long-term Treasury yields have risen sharply in recent months. The yield on the most recently issued ten-year note, for example, rose from 1.63 percent on May 2 to 2.74 percent on July 5, reaching its highest level since…Read More

Category: Federal Reserve, Fixed Income/Interest Rates, Think Tank