2024-05-01 12:30:00 ET
Summary
- The 3% Real rate of return concept roughly matches the Real GDP average over decades.
- Today, with rates rising and Mtg rates already at 7.5% range (small bracket), it is the institutional buyers of Treasuries who are out of sync with the rest of the market and need to catch up.
- The next recession will not occur till consumer delinquencies on credit cards and loans reach levels indicating a fragile financial system.
Looking at the long-term relationship between the 10yr Treasury vs 30yr Mortgage rates which are generally considered in lockstep, shows they tend to track closely with Mtg rates on average 1.75% higher (labeled as the ~1.75% Benchmark in the chart). The history from Aug 1976 thru Aug 1987 (large bracket) is a period of rapid rate rise. The most interesting aspect of this chart is that the difference between the 30yr Mtg rate minus the 10yr Treasury rate rises when there is a rapid rise in Mtg rates. In other words, the 30yr Mtg rate leads and the 10yr Treasury rate follows with a lag during rapid rate rises.
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For further details see:
10yr/Mortgage Ratio Implies Market Rise Coming