The federal government and the Federal Reserve may be coming to a realization that the deficits we are running are going to cost a lot more than previously anticipated. The 10-year Treasury bond today hit 3.70%.
Rates on the 10 year have gone from 3.20% o 3.70% in the last 5 days and up from 2.92% over the last month. This means mortgage rates are more than likely on their way up so if you have a variable rate mortgage you need to try and lock it in before you have a reset.
Look at the rate jump in the last week.
It is apparent that the bond market does not have a good feeling about the borrowing the government is going to have to do to get through the next year. According to Calculated Risk this should put mortgage rates should be about 5.6%. If mortgage rates go up, this will have an effect on house purchases which will stall the housing rebound.
Stock prices using a discounted cash flow model are a function of earnings and the discount rate. Most analysts use the 10 year as their discount rate. As this rate goes up the present value of future earnings goes down. This means, that when rates go up stock values tend to go down.
We could be looking at the beginning of the 1970’s all over again as there seems to be some demand in the emerging markets that have caused commodities to rally over the last two months.
