patrick.net

Below is an interesting comment from the housingwire.com link in the above post.

"The spread is getting a tad better on its own. However, we are far from the normal range of 1.6% – 1.8% spread between the 10-year yield and mortgage rates. We got to 3.0 recently, this shows you how stressed the market is. I mean, it’s a historical event. Going forward, if the spread gets better on its own, mortgage rates can fall without too much help from the 10-year yield because of the wide gap.

The bond market should rally enough to get mortgage rates below 6%.

The Fed has noted that they’re keeping an eye out on the housing market since it makes up 20% of the economy, and they have the tools in hand to get housing out of its current recession.

We aren’t there yet, but the above considerations are something to think about for next year.

What I have seen in the data is that housing stabilized when rates got to 5%. "

The sale of military equipment to the Ukraine beefed up America's export numbers.

The GDP print is about as accurate as a news headline from CNN.

I am waiting for foreclosures to hit GDP in Q2 in 2023 with the housing market.

.

About $10 billion to $25 billion of U.S. aid has been provided in Ukraine in 2022. I am not sure if the aid to Ukraine has been the reason for GDP for quarter 3 of 2002 being positive.
.


.

.
Also, Wikipedia page on US foreign aid has shown this: "The Kiel Institute has tracked $84.2B from 40 countries in financial, humanitarian, and military aid to Ukraine from 24 January to 3 August 2022. The United States has provided the most military assistance to Ukraine, having provided $16.8B since February 2022."

.

If inflation drops to 5% by March 2023, then I see interest rates dropping like the 30 year mortgage rate dropping below 6% and steady between 5.5% and 6%.

Consider that is a major drop since CPI was around 9.3% in June 2022 and 8.2% in September 2022.

From what I've read is that banks will raise interest rates on anticipation of inflation rising and that is why rates like the prime rate and the 30 year mortgage rate have increased significantly.

If rates drop, then companies won't have as much difficulty refinancing debt in 2023 and won't be forced to make major cuts such as large layoffs.

.

https://www.msn.com/en-us/money/markets/tremors-in-treasury-bonds-worry-wall-street-and-washington/ar-AA13xOJ8

See above link. This may lead to more downturns in bond funds like Vanguard's bond ETF (ticker: BND).

Notice balanced funds like those that are 60% bonds and 40% stocks have done a lot worse than expected because of the bond price downturn.

Forty years of relatively low inflation has been a benefit for ETF's like BND, now there is a different environment with CPI well over 5%.

I hope by spring that CPI is below 5.5% at least to return some stability.

Vanguard Total Bond Market Index Fund ETF

all time high of $89.50 in August 2020

52 week low of $69 in October 2022

Hence, a drop of 23%

That is almost the same drop as the S&P 500 which dropped recently about 26%

Inflation adjust that return ! ! ! ! ! !

Then thank the heavens that at least it was in US dollars.

For a laugh look at foreign bond funds.

Misc says

Inflation adjust that return ! ! ! ! ! !

Then thank the heavens that at least it was in US dollars.

For a laugh look at foreign bond funds.

Good point, as inflation was about 5% in 2021 and 8% in 2022 so the non-inflation adjusted return of 23% would be adjusted below to find the real return or inflation adjusted return.

23% x (1.05)(1.08) = 26.1%

Real return would be negative 26.1%

That seriously sucks for a bond fund ! ! !

Starting about now...we are going to have a record amount of treasuries issued. About $110 billion per month for Biden's budget, another $95 billion per month in bonds flowing off the Fed's balance sheet, and about another $50 billion per month to cover the increase in interest rates on the total debt, then there's China ditching some bonds and Japan selling treasuries to support the Yen.

There is always room for treasuries on a financial firm's balance sheet. They will simply cannibalize investments that would normally go to other investments.

They may have a higher yield than what many are anticipating, unless something blows up.