[LadyRuby]

Treasury Rate Signals Burdens for Borrowers

$this->bbcode_second_pass_quote('', 'T')he era of cheap money may finally be nearing its end.

Investors pushed up the yield on the government's benchmark note to over 5 percent on Thursday, its highest point in nearly four years and a signal that many borrowers will soon be paying more on mortgages and home equity loans.

... the rising level of interest rates across the board is expected to have the biggest impact on people who took out home loans with low introductory interest rates that are set to adjust in line with market rates in the next few years.

The 10-year Treasury note ... is most closely tied to mortgages and is likely to play a role in slowing home price increases and curbing the home-buying frenzy in many parts of the country.

"Where you are going to feel the pain the most is on the housing market," said Brian J. Carlin, a vice president at J. P. Morgan Private Bank.

Mr. Carlin estimated that recent homebuyers with adjustable rate mortgages could experience a jump in interest rates of 3 to 4 percentage points in the next two years, as the typical 3 percent introductory rate is adjusted higher in annual increments. For a family with a $400,000 mortgage, that could translate into an increase of as much as $1,000 in monthly interest payments.

...
In a speech yesterday, Donald L. Kohn, a Fed governor, said that rising interest rates were likely to slow the economy later this year, primarily by deflating the once-robust housing market. He indicated that he would favor increasing short-term rates further if the economy sharply accelerated or energy prices shot up, because both could ignite higher inflation.

"A tendency for inflation to move higher would put economic stability and the long-term performance of the economy at risk," he told bankers at a luncheon in Oklahoma City. Mr. Kohn said that inflation excluding energy and food costs had so far remained modest at about 2 percent.

...
Many analysts say that longer-term interest rates in the United States have been kept low by the purchase of government securities by foreign governments and investors, particularly from Asia.

There are some early indications that foreign buying is easing. In the first week of April, for instance, the Japanese government purchased foreign bonds at a much slower rate than it did during the comparable period from 2003 to 2005, said Wan-Chong Kung, a senior portfolio manager at First American Funds, a mutual fund company in Minneapolis.

"We have seen some moderation in buying from Asia, and I think we will continue to see that," Ms. Kung said, noting that recent interest rate increases by central banks in Europe and Japan were conditioning investors to higher borrowing costs across the world.

...

[Chaparral]

It is also worth noting that the Commercial Hedgers are at a 5 year record long positon in US Treasury bonds. That could signal that rates are near their top and are due for a decrease.

The concern is that future rate hikes by the fed will 1) create more inflation themselves and 2) be political suicide for whichever party is in power when the real estate market tanks taking huge sums of Americans' "wealth" with it.

It may be more politically expedient to allow the dollar to inflate.

If this is the case, it has decisive implications for the direction of one's investments/speculations.

[highfructose]

$this->bbcode_second_pass_quote('Chaparral', 'I')t is also worth noting that the Commercial Hedgers are at a 5 year record long positon in US Treasury bonds. That could signal that rates are near their top and are due for a decrease.

The concern is that future rate hikes by the fed will 1) create more inflation themselves and 2) be political suicide for whichever party is in power when the real estate market tanks taking huge sums of Americans' "wealth" with it.

It may be more politically expedient to allow the dollar to inflate.

If this is the case, it has decisive implications for the direction of one's investments/speculations.