In a recent comment, Joe M asks…
Can you please comment on long-term bonds? – I understand that with the deflationary outlook, treasury bonds should raise in price (yields go down) over the next two years or so. On the other hand, we seem to have made an important high with the double-top January / March. For the perspective RE buyer, housing prices will surely decline further. However, almost equally important is the trend in mortgage interest rates. It would be great to hear some more as also in the special report it was only briefly covered.
Beginning with the shortest term, the daily chart, the 30-year bond future has reached the top of its channel suggesting a pause may be near. The weekly chart, however, has room on the upside, with its channel suggesting 122 can be reached, or somewhere slightly above the highs from earlier this year. The monthly chart of 10-yr yields says government rates could get down to 3.2%, or even lower should the channel continue to head downward.
The question about mortgage rates is another matter. I thought one of the important points in this post from two weeks ago on the real estate market is that lower bond rates are not translating into the mortgage market. Years ago I wrote in Calendar Research Reports that the then upcoming long wave winter would see low interest rates but they wouldn’t help as most people would not qualify for loans. That’s exactly what’s occurring here. If the final interest rate bottom occurs at the end of long wave winter, then that low should be expected some time in 2010. It’s interesting that a 2010 low in rates would form a double bottom spaced around 7-8 years from the 2003 low, which would parallel the twin turns of similar spacing seen in equity markets that I’ve documented.
In sum, the U.S. long bond looks to move higher, but that won’t necessarily help the real estate market. I’ll present a Spiral Calendar analysis of rates here at some point in the future.
click chart to enlarge
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4 responses so far ↓
1 deuxsous // Aug 26, 2008 at 9:47 am
I see this period we are in as possibly a “vacation for inflation”, not long wave’s “economic winter” which is a decade or more off as I see it. The FRED long term investment grade bond yield chart shows the last two “winters” from 1919 to 1946 and 1980 to 2003. According to that schema, rates will be going up substatially after inflation gets back from a brief vacation. Fed and BOChina have kept rates from rising on schedule after 2003: the Greenspan “conundrum”.
http://twocents.blogs.com/weblog/2008/08/very-long-term-andrews-pitchfork-of-the-dow-30-stock-index.html#comments
http://www.screencast.com/users/Twocents/folders/Jing/media/96ae2993-bd14-4ec0-9297-a3b0e98a06e4
2 muellerjoerg // Aug 26, 2008 at 1:55 pm
Chris,
Thanks so much for your analysis. There are many influences on interest rates and the economy in general, but your Sarum model and the Spiral Calendar are certainly one of the best tools for mid-term financial planning. And this is regardless of how steep the stock market and commodities will go down and treasuries will go up versus there recent spikes 1999 – 2002/2003.
Joe
3 deuxsous // Aug 27, 2008 at 2:44 pm
Having visited Old Sarum, Salisbury, and nearby Stonehenge when one could take a country bus and walk right in, I’m eager to know about your Sarum model.
4 chris // Aug 27, 2008 at 2:52 pm
I think Joe is mixing Sarum with saros, a reference to my hypothesis that eclipse cycles are the driver of the long-wave.
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