So what does it mean?
The 10 year Treasury Yields are at a 46 year low. Let me rephrase that, my parents had only been married for a year when the 10 year Yield was that low.
It says a couple of things to me:
- It makes it very clear that the fundamentals of the economy are out of whack. If things were the way the market normally is (as in, 95% of the last 20 years I’ve been in the business) 30 year mortgage rates would be in the neighborhood of 4.25%.
- There are a LOT of people who want to put their money in Treasuries for the perceived safety of them. It’s the law of supply and demand that is pushing the price of the 10 year T-Bills up and the yield down.
- Correspondingly, the investment market is not as excited about buying mortgage backed securities (that’s Fannie and Freddie) and that’s why rates are a lot higher than they would be otherwise.
Is it possible for Hank and Bernie to persuade the investing public that Fannie and Freddie are as good as the Treasury from an investment standpoint? I don’t know, as long as Fannie and Freddie keep posting very large losses, I think it’s going to be hard.
What do you think?
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Comments
1 Comment so far
Paul Sheridan
It’s not just a flight to safety that continues to fuel the long bond.
Bernanke has stated he can buy them in unmlimited quantities in order to hold yields down. This standing bid has a lot to do with what is going on as is evidenced by the dismissal of the sliding dollar by the bond market. People would typically require higher yields as the currency they will be paid back with is deteriorating in value. Let’s call it the “Bernanke Bid”.