Monday, March 06, 2006

Real estate rates may soon succumb to global pressure

How Germany, Japan impact U.S. bond market

Long-term Treasury rates broke out of a month-long range…upward, and today above last November's two-year high at 4.68 percent. Mortgage damage is modest for now, fixed-rate loans still within sight of 6.25 percent, but we are going higher.

The source of pressure is global, having nothing to do with new domestic economic data. The rate rise on Thursday was, if anything, limited by weakish news: February retail sales disappointed, consumer confidence continued to sag, home sales slid for the fourth-straight month, and long rates rose anyway.

Global: the European Central Bank raised its cost of money for the second time, from 2.25 percent to 2.5 percent, and signaled that more hikes are coming. Inflation in Germany is running 2.7 percent; all modern central banks are trying to hold it below 2 percent.

Global: Japan's consumer prices appear to have risen for the first time in a half-dozen years. During that time the Bank of Japan has kept the cost of money at zero, trying to get out of a deflationary spiral that began 15 years ago. The BOJ this week said that it will soon reinstate a cost of money –- no matter how low, a shock.

Yields rose on all bonds everywhere in response to these changes in foreign central bank outlook, German 10-year bunds to 3.6 percent, and the 10-year JGB to 1.64 percent (after years and years 1.5 percent or lower).

Reade the entire Lou Barnes article at Inman News

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