 CLICK CHART TO ENLARGE | Chatter on Twitter was heavy yesterday about potential rate increases for 2018. I mash-upped the CoreLogic chart to the left with yesterday's spike in the 2 and 10 year yields (via ZeroHedge 2yr chart and 10yr chart). |
The CoreLogic Home Price Index Forecast suggests U.S. home prices will rise less than 5 percent this year, but if some 2018 mortgage rate forecasts pan out the mortgage payments homebuyers face could increase closer to 15 percent.
Andrew LePage, CoreLogic, February 15, 2018
15% mortgage payment increase? That's gonna cut into renovation plans and dreams of a new truck in the driveway.
But as I noted in my previous post; in December 2017 the Canada 10yr less 2yr metric, which is a measure of a recession threat, narrowed to only 32bps away from negative inversion where the 2 year yield would be greater than the 10 year.
But the new U.S. Fed chairman Jerome Powell pitched their congress yesterday with:
But as I noted in my previous post; in December 2017 the Canada 10yr less 2yr metric, which is a measure of a recession threat, narrowed to only 32bps away from negative inversion where the 2 year yield would be greater than the 10 year.
But the new U.S. Fed chairman Jerome Powell pitched their congress yesterday with:
"recent data has strengthened his confidence on inflation." and
"yield curve has been a problem in past when Fed got behind and had to raise rates quickly; that's not the case now"
The Fed's is planning on three rate hikes in 2018, but after the announcement yesterday futures traders reacted and began pricing in a 1/3 possibility of a fourth rate hike! Zoom zoom.
Meanwhile the Bank of Canada is not so sure about it's course this year:
Bank Of Canada To Take Cautious Path With Two More Hikes In 2018: Reuters Poll
The central bank has raised interest rates three times since last July, amid a robust job market and solid economic growth, but policymakers have said repeatedly they will be cautious in considering further hikes. Leah Schnurr, Reuters February 27, 2018
Today, February 28, 2018 the Canadian 10yr yield is ticking down as traders bet on higher prices not higher yields:
CLICK CHART TO ENLARGE
 CLICK CHART TO ENLARGE | Bob Hoye, financial market historian, sent out a note to his clients yesterday that U.S. 10 year futures traders should now be positioned to buy, not sell. So rate watchers, you may want to hedge your bets; chronic low rates may be with us for awhile and if the 10 year yield starts dropping relative to the 2yr, the potential inversion may start signalling a recession rather than a boom. |
As Bob has noted from a September 2012 report to clients:
Another unsupportable econo-myth is the notion that a Fed cut will keep a boom going. Short-dated market rates of interest go up in a boom and down in a bust. And the most dramatic declines only occur during the initial post-bubble crash. In 1873 the discount rate at the senior central bank plunged by 650 basis points. During the 1929 crash the Fed cut the discount rate by 450 beeps as was the case in 2000 and in 2007.
If you want to sample Bob Hoye's work, request it here
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