Alright - no prizes for guessing why I'm studying these (data from Fred).
Still, it is a pretty interesting graph, no? Lowest rates since who knows when. Clearly the bond market is not anticipating a lot of inflation in current decades.
Looking at the last five years worth of data only, there is no immediate sign of a slowing of the pace of fall in rates that has been going on since the spring of this year.
I guess I'm wondering if a major issue for the future of this series is politics. The mortgage market is still massively affected by government involvement (FHA, Freddie Mac, Fannie Mac). I imagine a Republican house of representatives will be likely to push back on that involvement, which in turn might lead to higher mortgage rates, though I guess that could take a while to translate into any actual changes in policy.
On the other hand, the Federal Reserve is contemplating further quantitative easing (buying long term bonds with a view to further lowering rates on long term debt). Anticipation of this is likely to be a significant factor in the recent fall in rates.
Anyway: happy, happy data :-)
Not expecting inflation? Then why are TIPS yields negative out to 7 years.
ReplyDeleteThe Fed has exerted enormous force to lower mortage rates (and threatens much more). Kinda nutty to then point at low rates as evidence of low inflation expectations. Don't look at the man behind the curtain especially with gold at nominally record prices.
The mortgate market keys off the Treasury market (10-year especially) where there is substantial foreign sovereign involvement. Decisions that are not necessilary related to inflation expectations.
ReplyDeleteHowever, this is all beside the point for your purposes. If you feel secure about your income stream, it's a happy time to borrow money! :-)
I'm not convinced that anybody can do anything about Fannie and Freddie, regardless of party. Well, let me modify that, I'm not sure anybody can do anything about government involvement in the mortgage market.
ReplyDeleteOver that past year or so, the government essentially WAS the secondary mortgage market. The secondary market IS the mortgage market because it's what allows the lenders to offload the loans.
Between Fannie, Freddie, Ginnie, and the Fed, a huge percentage of the mortgages that were purchased and sold on the secondary market (or through MBS) were moved through government entities. Without this involvement, it's not clear there would be much of a secondary market at all. Without that market, banks would have to keep the loans on the books. If that were the case, loans would become more expensive and harder to get. I think this would have the effect of essentially killing the US real-estate market as lack of qualified buyers would drop prices like a stone (since they are artificially inflated due to the demand created by the availability of mortgages due to government support).
I think you will hear a lot of talk about getting rid of Fannie and Freddie, but I'm not sure it's real. Before anybody cheers that idea ask the question, "Who's going to replace them in the secondary market?" If it's nobody, then prices almost have to collapse to a much lower "bottom" that is supported by real wages. Otherwise, look to see if the money behind the curtain is really private money.
"bond market is not anticipating a lot of inflation". 2 points:
ReplyDelete1. The market is split, deflationists in bonds, inflationists in equities and commodities. I suspect this is bad and there should be more ways for people to bet negatively in markets. The big finance companies can do it, and so not letting other people do it is one of the reasons the finance industry keep taking heaps of money out of the real economy.
2. People always say "the market won't accept negative returns (in real terms)". I think this is wrong. They will if there is nothing better, and this will be a feature of the peak oil world.
Benno, if you had TIPS in a retirement IRA would you hold or sell?
ReplyDeleteWish I owned more, Robert. But they are too rich now.
ReplyDeleteExpect deflation, oil prices will do down (for a while), future energy investments will go down, PO is history:-)
ReplyDelete