June 08, 2007

With interest rates skyrocketing and the 10-year US bond in meltdown, you know what that means, right?

So many ramifications

1) buyers who got pre-approved a couple of months ago likely might not be approved today, so they won't be able to close

2) potential homedebtors will see their expected monthly payments soar, which may lead them to rethink closing

3) ARM resets will be even more painful

4) Foreigners may sell bonds even faster, making interest rates go up even faster

5) Home prices fall even faster so that the dummies who buy based on monthly payment (vs. asset price) can afford the same monthly payment

6) Renting is even cheaper today vs. buying or owning (with an ARM)

7) "Analysts" were wrong yet again

8) China finally realizes they've been playing a fools game, and sitting on $1 Trillion of worthless paper is not a good idea

What'd I miss?

Treasuries plunged on Thursday as fears of tighter monetary policy globally fueled a break in yields above 5 percent, unleashing another round of heavy selling.

Yields across all maturities rose to or above 5 percent for the first time since July and benchmark rates posted their biggest one-day spike in seven months.

"We are being overwhelmed by mortgage-related selling," said Thomas di Galoma, head of Treasury trading at Jefferies & Co. in New York.

13 comments:

Anonymous said...

This is realy going to propel the housing market down. Housing is going to drop like a rock. I see the inflation on my radar! Why can't the feds! Ben fire up the helocopter, and get those bags of $100's ready, you're going to need them.. Stand back and get the paddles, this economy won't have a pulse!

shtove said...

Really excellent analysis by a trader here:
http://tinyurl.com/2cqoc6

Anonymous said...

YEP!!!

realdeal said...

You all need to remember just one thing. The 2008 Olympics are in Beijing, and China is not going to let anything mess that up. Between the Banks of China and Japan, they have $1.5 trillion to use as needed. There will be strings attached for sure (bend over Paulson and Benanke), but make no mistake they will intervene when the time comes.

This blip in the ten year is just a transient. I expect record low mortgage rates by the end of the year as China and Japan try to keep the train rolling uphill.

SPECTRE of Deflation said...

Fugly if you are a bond bull. You just had your head handed to you, and not by the religion of pieces.

Anonymous said...

The reason is obvious.

War is inflationary. Always has been. Always will be.

Jambu said...

Burn baby burn!!

Sofia said...

"We are being overwhelmed by mortgage-related selling," said Thomas di Galoma, head of Treasury trading at Jefferies & Co. in New York.

---

Can you say convexity?

TJ said...

From www.jsmineset.com
Foreign central banks net sellers of U.S. debt-Fed
Thu Jun 7, 2007 4:30pm
NEW YORK, June 7 (Reuters) - Foreign central banks were net sellers of U.S. Treasuries last week, Federal Reserve data showed on Thursday.
The Fed said its holdings of Treasury and agency debt kept for overseas central banks fell $12.5 billion in the week ended June 6, to stand at a total of $1.950 trillion.
The breakdown of custody holdings showed overseas central banks sold $9.769 billion in Treasury debt to stand at a total of $1.225 trillion.
The foreign institutions also sold securities from government-sponsored agencies like Fannie Mae (FNM.N) and Freddie Mac (FRE.N), subtracting $2.727 billion from their holdings, to stand at $725.21 billion.

The Mogambo Guru
And my guts were also wrenched by the complete surprise of Larry Edelson, of MoneyandMarkets.com, reporting that "Not many people noticed, but on May 17 the folks in Washington upped the country's national debt limit to $9.815 trillion."

Anonymous said...

buy some gold and silver

Anonymous said...

This blip in the ten year is just a transient. I expect record low mortgage rates by the end of the year as China and Japan try to keep the train rolling uphill.

June 09, 2007 2:12 PM

==================================
You forget that there are certain boundary conditions to the continued bail out through pumping ever increasing rates of monetary emmissions. Like a supersonic plane crashing through the sound barrier.
The cost of the monetary emmissions needed to bail out the system now exceeds the total aggregate value of the $700 trillion in derivate paper they are trying to save from collapse.

Anonymous said...

'We are being overwhelmed by mortgage selling activity'.

Has anyone been keeping up with the MBS abx tranches lately? LOL, check out that 7-01, as it is almost at an alltime low.

Perhaps this is why bond yeilds are screaming?

Then again perhaps the big money centers that borrow YEN at .5% are getting greedy and need to run rates higher in order to maximize profits in that YEN carry trade scam.

Afterall, I wish I could borrow yen at .5% and take that borrowed money and buy US treasuries yielding 5.25%. What a deal. Kinda brings new meaning to 'money for nothin'.

cobra2411 said...

Everything will be ok. Oil and gas prices are going lower, so that will make up for the higher interest rates. Also consumer credit is lower and so is the trade deficit... This is a global economy and it's too strong to derail....

Hahahahahaha.....

Gas and oil are down because people are running out of money. Trade deficit is down for the same reason.

I have to start clipping these articles. It'll be great to come back a year from now and ask WTF were you thinking.

We'll bounce back. The nature of the beast is that we will always overshoot on both ends. Instead of hitting a level, we'll blow past it and then later it will rise back up looking for the level (only to overshoot...)

If you know when to get in and out you can make some good money...