The US Long Bond in Far East Trading
"The US Long Bond in Far East Trading" is a phrase that I used to puzzle over when waking up to the sound of Radio 4 in the morning. It was one of those things that was mentioned on a daily basis in the Financial Slot but had no relevance whatsoever. Well, if BBC Business Editor Robert Preston is right then the current performance of US Bonds ought to be a wake up call for everyone who is in the business of debt. Preston observes that one of the unusual things about the last decade or so has been the ability to borrow on low long term interest rates. This has fuelled housing markets, private equity take overs, highly leveraged buy-outs and equities.When government stock is in demand the interest paid on them is low. Conversely, when demand is low rates have to rise to attract investors. In recent years China and the Far East have had a voracious appetite for government stock and so yields have been low. However, this has now changed. There has been a sharp fall in the price of 10 year US bonds (Treasuries) and yields have shot up to 5.333% to compensate for lack of demand. This means that the bench mark price of borrowing long term is on the way up. Since mortgage lenders have to compete for funds on the market the cost to them of lending will rise and, in turn, be passed on to borrowers.If borrowers are unable to service high level of debts then affordability constraints will bring downward pressure to bear on house prices.....
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