THE CREDIT CRISIS: THE BUBBLING BOND MARKET RICK TOBIN
each year, then the overall value of the U.S. Dollar may rapidly decline. Many nations around the world have
been so concerned about the USA’s inflationary QE policies that they have begun to use other forms of
currency besides the U.S. Dollar. This decreased demand for the Dollar from abroad has led, in turn, to even
further falling Dollar values.
QE and the Stock and Bond Markets
Shortly after Federal Reserve Chairman made
public statements on May 22nd that the Fed may
begin “tapering” (or reducing) their QE methods in
the near term, then U.S. stock prices plunged and
bond prices increased quite a bit due to investor
concerns. Since many investors know and
understand how important QE policies have been
to increased stock and real estate prices in recent
years,
then
their
same
investor
concerns
adversely impacted stock and bond values in the
short term.
Fed Chairman Bernanke also made similar
“tapering” statements about potentially easing up
The worsening bond prices then, in turn, led to
QE policies, or buying fewer assets like stocks,
higher 10 year Treasury Yields. Thirty (30) year
bonds, and mortgages, on June 19th and on July
mortgage rates are tied to the directions of the 10
10th. Yet, the financial markets strengthened,
Year Treasury Yields, so mortgage rates began to
strangely, after the July 10th comments at an
increase
economic conference, and the Dow Jones sits
mortgage rates spiked the most in a two (2) month
near all-time record highs once again on the day
time span than ever before.
rapidly
in
recent
months.
In fact,
that I am writing this article (mid-July 2013).
Additionally, thirty (30) year fixed mortgage rates
In the 2nd quarter of this year, the $5 trillion dollar
increased to their highest levels or rates since July
U.S. bond market dropped about 2% partly
2011. While today’s interest rates are still near
“tapering”
historically low levels, the 30 year fixed mortgage
comments. This was the worst bond market drop
rate recently increased from a national average of
since the “Bond Market Massacre” back in 1994
3.93% to 4.46% within the span of just one (1)
after the Fed shockingly raised short term rates a
week. According to a Freddie Mac report, this was
number of times back when interest rates were
the largest one (1) week increase since as far back
near thirty (30) year lows at the time.
as 1987.
related
to
Chairman
Bernanke’s