Hey Beach, check out SmartTags if you dont already know about them. They go in all my checked baggage and I can see where they are at any time. When I have lost a bag, I told them exactly where it was and it helped knock down recovery time. Im glad you had safe travels and again, welcome back! - HHH
Thanks Beachman for such a well thought out piece once again. I am not sure I understand how the value of the bonds (aka their prices) will be going down as a result of the influx of bonds on the market. Are we making this conclusion on the basis of the fact this is a 7% increase from last year (which saw a similar uptick on interest rates as a result of bond issuance)? Apologies in advance for the basic question, but this is the area I struggle the most with as I'm watching this space particularly for mortgage rates. Thanks for your guidance!
I love this question, Samia...thanks for asking. Here is how I am thinking about interest rates.
It is almost a given that the US Feds will cut short term interest rates this year. The debate is not IF...but by how much...markets are pricing in 6 rate cuts. I think there will be 3-4 rate cuts.
Now the Feds only control short term rates.
Bond issuances are usually longer term - 5yr to 30 year bonds. These longer term rates are market driven...supply and demand. This includes mortgage related bonds/rates too btw
Central banks around the world are buying less bonds...since 2022. They are in fact selling their bond holdings. Even China, Japan etc are selling some of their US bond holdings to boost their economies.
So if we get a higher influx of long term bonds in the market, the higher supply along with less buyers will push bond prices lower and keep bond yields (rates) relatively high. These LT rates are currently trying to find their equilibrium...I think they will continue to hover in the 3.5 to 4.5% range.
Mortgage rates will stay slightly higher than 4.5% because they are deemed more risky than US govt backed bonds...so say 5-6% for a while.
Hope this helps...let me know if you see things differently.
Hey Beach, check out SmartTags if you dont already know about them. They go in all my checked baggage and I can see where they are at any time. When I have lost a bag, I told them exactly where it was and it helped knock down recovery time. Im glad you had safe travels and again, welcome back! - HHH
Thanks Beachman for such a well thought out piece once again. I am not sure I understand how the value of the bonds (aka their prices) will be going down as a result of the influx of bonds on the market. Are we making this conclusion on the basis of the fact this is a 7% increase from last year (which saw a similar uptick on interest rates as a result of bond issuance)? Apologies in advance for the basic question, but this is the area I struggle the most with as I'm watching this space particularly for mortgage rates. Thanks for your guidance!
I love this question, Samia...thanks for asking. Here is how I am thinking about interest rates.
It is almost a given that the US Feds will cut short term interest rates this year. The debate is not IF...but by how much...markets are pricing in 6 rate cuts. I think there will be 3-4 rate cuts.
Now the Feds only control short term rates.
Bond issuances are usually longer term - 5yr to 30 year bonds. These longer term rates are market driven...supply and demand. This includes mortgage related bonds/rates too btw
Central banks around the world are buying less bonds...since 2022. They are in fact selling their bond holdings. Even China, Japan etc are selling some of their US bond holdings to boost their economies.
So if we get a higher influx of long term bonds in the market, the higher supply along with less buyers will push bond prices lower and keep bond yields (rates) relatively high. These LT rates are currently trying to find their equilibrium...I think they will continue to hover in the 3.5 to 4.5% range.
Mortgage rates will stay slightly higher than 4.5% because they are deemed more risky than US govt backed bonds...so say 5-6% for a while.
Hope this helps...let me know if you see things differently.
Cheers!
I’m not seeing the transcript Beach....
The transcript feature is only available via the substack website... for now. Coming soon in the app.