TREMBLING TREASURIES RICK TOBIN
As a result of the high double digit fixed mortgage
rates at the time in the early 1980s, the popularity
of seller financing options such as AITDs (All
Inclusive Deeds of Trust), Land Contracts or
Contracts for Deed, Lease-Options, and “Subject
To” deals increased significantly. On a comparative
basis, a 12% “Wraparound” or seller financed deal
seemed awfully “cheap” as compared with a 16%
fixed rate mortgage loan.
The Credit Crisis Trends for both Treasuries
and Fixed Rates
References to the "bond market" usually refer to
Since the official start of the Credit Crisis back in
the government bond market, because of its size,
the Summer of 2007 (www.thecreditcrisis.net), we
liquidity, relative lack of credit risk and, therefore,
have seen a downward pricing trend for both
sensitivity to interest rates. Because of the inverse
Treasury Yields and fixed mortgage rates due to
relationship between bond valuation and interest
some fancy financial games or shenanigans played
rates, the bond market is often used to indicate
by the Federal Reserve, such as “Quantitative
changes in interest rates, or the shape of the yield
Easing” (“create money out of thin air in order to
curve. The yield curve is the measure of "cost of
buy stocks, bonds, and mortgages”) and “Operation
funding.”
Twist.” With “Operation Twist”, The Fed sells short
term bonds while simultaneously purchasing long
term bonds, in order to artificially drive Treasury
The Historical Trends for both Treasuries
yields and mortgage rates downward.
and Fixed Mortgages
Let me go back further in time to better explain this
section about the more recent changes in 10 Year
Treasuries which impact the directions for thirty
(30) year fixed rate residential mortgages. Interest
rates reached their peak highs back in the very
early 1980s (1981, especially). In the very early
1980s, the 10 Year Treasury Yield peaked near an
insanely high 16.0%, and corresponding 30 Year
fixed mortgage rates fluctuated in the 15% to 18%
rate ranges.
Bonds are glorified “IOUs”
from governments or
companies to investors