Treasuries Tumble, Pushing 10-Year Yields Up Most Since April

Predicting mortgage interest rates is a challenging proposition (if accuracy matters to the forecaster!). The 10-year Treasury Bond is a major key.  As this article says, "we're on a knife's edge."  But are we, or is that only in the short term?  It's difficult to imagine a scenario that would not have rates increasing from their current levels in the coming years. - David

July 10 (Bloomberg) -- Treasuries fell for the first week in a month, pushing 10-year yields up the most since April as concern eased the U.S. will slide back into recession and the government prepared to auction $69 billion of notes and bonds.

The 30-year bond yield rose above 4 percent and the 10-year yield exceeded 3 percent for the first time this month as stocks and commodities climbed, damping bonds' haven appeal. A report next week is forecast to show a U.S. retail sales decline slowed last month, adding to data that showed unemployment claims down and wholesale inventories up.

"We're seeing a move toward riskier assets," said Guy Lebas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC in Philadelphia. "There's a feeling that the pessimism was overdone."

Untruth of the Day: Treasury Official Says Housing Goals Not to Blame for Fannie, Freddie Failures - WSJ

An Asst. Treasury Secty has proclaimed to the Mortgage Bankers Association that Fannie Mae and Freddy Mac didn't fail because the government mandated they relax lending standards in order to meet affordable housing goals. Nope, they failed because Fannie and Freddie relaxed lending standards in order to generate more loans and make more money!

Treasury Official Says Housing Goals Not to Blame for Fannie, Freddie Failures - WSJ

Methinks the Asst. Treas. Secty doth protest too much. Fannie, Freddy, and lenders in general

Auctions, Data Weigh on Treasurys - WSJ.com

Simple formula:

Demand for 10-year Treasury securities down => Yield of 10-year Treasury securities hits 4% => Mortgage rates headed up further. - David

Auctions, Data Weigh on Treasurys - WSJ.com

The Fed's Balance Sheet as it Withdraws from Mortgage Purchases

Ever wonder what's on the balance sheet of the Federal Reserve?  Its assets can be grasped easily by referring to this graphical and interactive chart of the Federal Reserve's assets. 

Throughout 2006 and 2007, the Fed held primarily US Treasury Securities (about $780 billion worth). 

That changed dramatically with the bailouts of 2008 ($1.725 trillion), and with enormous purchases of mortgage securities in 2009 (creating a market of over $1 trillion for FHA insured home loans, which remain the key source of home mortgage lending today). - David

Federal Reserve earned $45 billion in 2009 - washingtonpost.com

An interesting effect of the Fed making so many loans to troubled institutions, so long as those loans are paid back, is that the Fed's own income is enhanced. That could become problematic pretty quickly if the loans aren't paid back, because as so many traditional lenders have discovered, it's REALLY tough to make up for loans losses with interest income.

Federal Reserve earned $45 billion in 2009 - washingtonpost.com

Additional earnings are created when the Fed buys Treasury securities, which have nearly quadrupled on its books since last year, in order to keep interest rates low.