Thursday, April 13, 2006

10Y Yield Hits Key Psychological Barrier - 5%

From Bloomberg this morning:

U.S. 10-Year Note's Yield Rises to 5%, Highest Since June 2002

U.S. 10-year Treasury note yields rose to 5 percent for the first time since June 2002, a harbinger of higher borrowing costs for everything from home loans to corporate bonds.
...
``It's an important psychological level and the risk is rising yields won't end anytime soon,'' said Michael Rottmann, head of fixed-income research at HVB Group in Munich. `This could ultimately translate to further pressure on Treasuries.''

The 10-year note's yield rose 2 basis points, or 0.02 percentage point, to 5 percent at 6:48 a.m. in New York, according to Cantor Fitzgerald LP. The yield is up from 4.39 percent at the end of last year and 4.69 percent when the Fed began lifting borrowing costs in June 2004.
...
`This is a very important level'' for the 10-year note, said Paul McCulley, a managing director at Newport Beach, California-based Pacific Investment Management Co., which manages the world's biggest bond fund, in an interview on April 7. ``How far it will go above five I don't know. Markets have a tendency to overshoot.''
...
Ten-year Treasury yields may be headed for 5.5 percent as investors break through important support levels, said James Bianco, president of Bianco Research LLC in Chicago, in a conference call with clients on April 6.

The rise in 10-year yields may have caught most economists off guard. The median estimate of 70 economists surveyed by Bloomberg News from Feb. 27 to March 7 was for the yield to end this quarter at 4.80 percent, and peak this year at 4.90 percent.

19 Comments:

Blogger grim said...

10Y at 5.01%, 30Y at 5.09% at 7:40am.

The economic docket is rather full today. The jump to 5% is likely in anticipation of positive Retail
Sales for March as well as a positive Initial Claims report. Also on the docket a bit later this morning is the University of Michigan Consumer Sentiment survey.

We've got a whirlwind of economic data on the calendar between now and the next FOMC meeting on May 10th.

grim

grim

4/13/2006 06:54:00 AM  
Anonymous Anonymous said...

Off Topic:

For the curious in Bergen County, here are the number of residential listings NOT including condos & co-ops from NJMLS

03/03 3,132
03/10 3,230
03/17 3,337
03/23 3,432
03/30 3,543
04/05 3,628
04/12 3,706

The day before we were at 3,713 adn today it's 3,702. So the inventory seems to be slowing down due to spring.

Use the word, spread the word: Bubble.
To paraphrase Robert Shiller, perception alone can cause the market to turn.

4/13/2006 07:26:00 AM  
Blogger chicagofinance said...

"So, where do you think it will settle out? It seems to be on a tear recently and I'm not convinced we are done."

Rates go up when there is selling, so while I understand using the word "tear", it might be better to say "getting routed".

Fed futures are now pricing in two rates hikes.

4/13/2006 08:44:00 AM  
Blogger chicagofinance said...

grim:

By the way - POW. Let's get it to 6%.

chicago

4/13/2006 08:46:00 AM  
Blogger chicagofinance said...

Everyone:

Remember, the RE bulls have built their forecasts assuming an accomodative or at worst neutral rate environment. The more that rates go up, the more you should expect backpeddling. This strategy was purposefully done to provide CYA.

chicago

4/13/2006 08:48:00 AM  
Anonymous Anonymous said...

So for those people that think that cash is king. Where is a good place to put the money away for a year until it is time to buy real estate?

4/13/2006 09:03:00 AM  
Anonymous Anonymous said...

to 10:03

1 yr jumbo CD rates are over 5%. e.g. countrywide bank

4/13/2006 09:49:00 AM  
Anonymous Anonymous said...

It's all relative.

Let's say a house sells for $750k and the owner sold it last year.
CD rates were about 3%.

Lets say in 1 year the rates go up to 6%. Now $375k will equal the same interest from the cd paying 3%.

House prices will go down to reflect this.

4/13/2006 09:53:00 AM  
Blogger grim said...

I wouldn't lock into a 1y CD at this point. Look into laddering.

Last CD I went into was from Hudson City Savings Bank. They were offering 4.85%(APY) for 6mo.

Yield is pretty good for a local bank, no hassle of dealing with the onlines.

grim

4/13/2006 09:55:00 AM  
Blogger grim said...

10Y @ 5.02%, 30Y at 5.10% at 10:54.

Michigan consumer sentiment came in slightly above estimates. This should provide some support to keep the 10Y above 5..

grim

4/13/2006 10:02:00 AM  
Blogger chicagofinance said...

Anonymous said...
So for those people that think that cash is king. Where is a good place to put the money away for a year until it is time to buy real estate?

from WSJ

ING Direct Plans
Checking Account
With High Yield

By JANE J. KIM
April 11, 2006; Page D2

[edit]

ING Direct's move into checking accounts comes at a time when banks are aggressively courting new customer deposits to bolster profits. Competition among online banks is especially fierce. ING Direct offers a 4% rate on its savings account. Last month, Citigroup Inc.'s Citibank unit launched its own Internet bank, Citibank Direct, which is offering a 4.5% rate on a savings account to customers who open a linked Citibank Direct checking account.

HSBC Holdings PLC's HSBCDirect is paying 4.8% on its savings account until April 30, while EmigrantDirect.com, a unit of New York's Emigrant Savings Bank, is paying 4.5% on its savings account. By contrast, the average rates on statement savings accounts and interest-bearing checking accounts are 0.53% and 0.29%, respectively, according to Bankrate.com.

Online banks have typically focused on offering high-yielding savings vehicles, such as savings accounts, money-market accounts and CDs, often requiring customers to link those accounts to checking accounts held at brick-and-mortar banks. Still, there are some online banks that offer checking accounts.

EverBank Direct, a unit of EverBank Financial Corp., is offering new customers an introductory rate of 5.51% for three months on its online interest checking account; after the introductory period, the rate drops to 3.01% to 4.01%, depending on the balance. The bank reimburses up to $6 a month in ATM fees. Presidential Bank FSB of Bethesda, Md., is offering a checking account paying an annual yield of 4.37% to customers who open the account online or through one of its branches; a minimum of $1,500 is required to open the account, and customers must maintain a minimum balance of $1,000 to avoid monthly fees.

4/13/2006 10:38:00 AM  
Anonymous Anonymous said...

"1 yr jumbo CD rates are over 5%. e.g. countrywide"


INGDirect.com is at 4%, and you're fully liquid.

Also, you can google up some e-coupon codes to start with $25/$50 of free money for setting up an account.

4/13/2006 10:44:00 AM  
Anonymous Anonymous said...

HOUSING IS DEADMEAT.

RATES GOING UP CRUSHING AFFORDABILITY.

BOOOOOOOYAAAAAAAH..

BOB

4/13/2006 11:49:00 AM  
Anonymous Anonymous said...

So for those people that think that cash is king. Where is a good place to put the money away for a year until it is time to buy real estate?

emigrantdirect.com
4.5%no minimum,no term

4/13/2006 12:08:00 PM  
Blogger chicagofinance said...

The Ten held 5% [5.043] and closed for the long weekend.

In a word....conun-dead

4/13/2006 12:17:00 PM  
Anonymous Anonymous said...

This is a super big one, I think--it will sail up and up, and prices will drop and drop. Which is great. I would rather get hit with a higher rate/lower price combo to get the deduction and, in the far future, refinance

4/13/2006 12:32:00 PM  
Blogger grim said...

This one goes out to all the economists/finance types.

`Revolutionary' Fed Study Has Economists Rethinking Forecasts

A new Federal Reserve study has shaken economists' forecasts by suggesting the U.S. economy will have to decelerate much more over the next decade than most now expect.

The study, to be published in July, finds that the retirement of the Baby Boom generation will force far-reaching adjustments in the way the economy works. Forecasts for everything from growth and employment to corporate profits and interest rates will have to be recast.


A preliminary draft of the paper can be found here"

The Recent Decline in Labor Force Participation and its Implications for Potential Labor Supply

Hat tip to the folks over at Big Picture (http://bigpicture.typepad.com) .

grim

4/13/2006 12:32:00 PM  
Anonymous Anonymous said...

No sense in locking in 5% for 1 year. 6-9 month cds are paying around 4.9% With at least 2 more rate hikes, the short term CDs are the logical choice.

4/13/2006 12:36:00 PM  
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5/18/2006 05:08:00 PM  

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