Posted on 04/19/2022 10:22:23 AM PDT by Browns Ultra Fan
People Get Ready! For The Federal Reserve to actually withdraw its massive stimulus.
I generally discuss that negative impact of rising mortgage rates on the housing market, but today I am focusing on the decline in agency mortgage-backed security prices due to rising mortgage rates.
Here is the uniform MBS price for a 3.5% coupon security. It is falling like a rock with anticipated Fed monetary tightening.
And duration risk is going to the moon! (That is, accelerating rapidly).
At least energy prices are cooling thanks to China grinding to a halt with the latest Covid epidemic.
I wish The Fed would back off its allegedly ambitious tightening and soothe me.
But hold on, Powell and The Fed are coming with their sword of destruction.
(Excerpt) Read more at confoundedinterest.net ...
“People get ready for the DC elites to screw us over.”
I’ve watched it happen, over and over throughout my life. Why wouldn’t they? There is never any consequence.
I like Jeff Beck's version of the song.
“People get ready for the DC elites to screw us over.”
They already have, the only question is how much more of being flipped over and over again for additional screwing are we to get? Not only does one’s money buy less, but also the value of many retirement accounts have both dropped in dollar amounts (value) and what remains therein will buy less anyway. We are getting closer to Venzuela every day.
Have pity on those
Whose chances grow thinner
Rod Stewart does an excellent vanilla-soul rendition there.
Not a good time to be buying or holding any fixed rate investment. If you have an adjustable rate mortgage it’s time to refinance to as long a fixed rate loan as makes sense for your finances.
The DC elites are now eating the corpse of the Golden Goose they’ve killed.
They are gobbling it all up as fast as they can to get everything they can as it is apparent that Goose is dead and can no longer deliver. They will get their last fill, and then leave the scene, to disappear with their loot while the people, left with nothing but massive debt and destitution, will remain to suffer the effects of the greatest theft the world has ever seen.
In the old days when one stole your horse in the west you know what happened to them when caught. No wonder so many are getting out while they can
haven’t they been doing that for a long time now?
What’s “duration risk”?
So is the author of this piece in favor of continued inflation eating up everything that savers worked hard to accumulate?
I monitor foreclosures in the Minneapolis paper. Prior to March there were 6-10 foreclosure notices in the paper. Now there are up to 6 PAGES of f/c notices.
Some people paid 20 years on their houses to lose it after covid. Some people purchased a $175K house in 2019 and now owe $325K, as they lose their homes.
What’s with these banks lending money to owners that are a bad risk? I’m starting to see more “for sale” signs. The housing market is opening up and values should be dropping.
The stock market is generally the transfer of wealth from the middle class who generally play it badly, to the rich and powerful and corporate interests who game the system. Those interests are suddenly upset that the Fed can’t keep shoveling the gravy their way, while real inflation hovers at or near 20%.
They know darn well that the second inflation looks improved, the Fed will slam rates back to zero, the market will go on another tear, and all of the middle class who bought high and sold low will have foot the bill for another liquidity pump and dump.
Heads they win. Tails they don’t lose. Only the little people lose.
I like his version of “Going Down” better...
“The Fed are coming with their sword of destruction.”
Well I’m still waiting for that to happen, as of last week the Fed was still buying large quantities of mortgage backed securities and increasing its balance sheet. I’m currently shorting the market and way underwater with my position waiting for the Fed to actually act instead of its jawboning. But even when they do act I doubt that the tightening will last or go far enough to quell inflation, they can’t allow rates to climb very far with our $30 trillion debt. So stagflation it is.
Only buy GNMA (Government National Mortgage Assoc.) no Fannie Mae, Willy May, etc MBS mortgage backed securities. Durations will extend but credit remains AAA. Who cares if the Easter Bunny ruins everything
Only buy GNMA (Government National Mortgage Assoc.) no Fannie Mae, Willy May, etc MBS mortgage backed securities. Durations will extend but credit remains AAA. Who cares if the Easter Bunny ruins everything
And look at them options markets. They’re betting on large interest rates this year and negative interest rates by 2024.
If you buy a 6-month bond paying 2% and then interest rates on new issues of those same bonds rise to 4%, the bond you hold will lose value if you sell it before maturity. But at least you’ll only be in that position for six months … so the “duration risk” isn’t high.
If you buy a 30-YEAR moms paying 3%, you have 30 years of exposure to the ups and downs of interest rates. And anyone who bought those bonds in 2020 when they were paying only 2% has even more duration risk because the interest rate started lower and has 28 years left to fluctuate.
The moral of the story is that when interest rates are low you want to BORROW at fixed long-term rates … but LEND (i.e., buy bonds) for shorter terms. When interest rates are low, there’s much more upside to the rates (and downside to the value of your bond) than downside.
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