Negative Bond Returns Converge With Mortgage Miracle
Federal Reserve Chairman Ben S. Bernanke has some good news for investors: Treasury bondholders will lose money for the first time in 10 years amid an unprecedented decline in the gap between the interest rate on 30-year mortgages and government notes, signaling an end to the worst financial crisis since the Great Depression.
Yields on benchmark 10-year notes will end the year little changed at 3.36 percent before rising to 3.65 percent by mid- 2010 as bond prices fall, according to the average estimate in a Bloomberg News survey of JPMorgan Chase & Co., Goldman Sachs Group Inc. and the rest of the 18 primary dealers that trade Treasuries directly with the central bank.
Cheaper Mortgages
Home buyers now pay an average 5.19 percent on 30-year fixed-rate mortgages, according to Bankrate.com. That’s down from 6.46 percent in October 2008. The mortgages cost 1.88 percentage points more than yields on 10-year Treasuries, compared with 3.27 points in December, data compiled by Bloomberg show. The average gap for the five years ending with 2007 was 1.53 points.
Mortgage rates had climbed to the highest since 2002 in October after the bankruptcy of Lehman Brothers Holdings Inc. froze credit markets and the real estate market collapsed. The housing slump that caused the recession is easing as tax credits to first-time buyers and near record-low borrowing costs help stabilize prices. Purchases of existing homes rose 3.4 percent in August compared with a year earlier, the National Association of Realtors said Sept. 24.
Investors growing more comfortable with risk added about $295 billion this year to bond funds targeting debt including corporate bonds, bank loans and municipal notes, Bank of America Corp. analysts wrote in a Sept. 24 report, citing AMG/Lipper Data Services. Barclays Plc index data shows yields on high- yield, high-risk corporate bonds have dropped to 7.54 percentage points more than Treasuries, from a record high of 19.7 percentage points in December, reducing costs for companies.
Negative Bond Returns Converge With Mortgage Miracle
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