My Kuroda! 10Y T-Note Yield Declines After Approaching 3% Barrier (Same For Germany And Japan)

The US Treasury 10Y yield appears to have bounced off a reflecting barrier — the 3% yield barrier.


For the German Bund, it is reflecting off of the 75 basis point barrier.


Even Japan’s 10Y sovereign yield is falling.


As a tribute to The Fed, ECB and Bank of Japan, I give you the song “My Kuroda.”


The Under-utilization of Housing Wealth In Retirement (Is Credit Too Tight and Shared Appreciation Mortgages As A Solution?)

There is an interesting event coming to Washington DC — the 2018 Housing Wealth in Retirement Symposium brought to you by The Funding Longevity Task Force at The American College of Financial Services and the Bipartisan Policy Center (BPC).

The goal? The goal for the Symposium is to facilitate collaboration among stakeholders – including regulatory agencies, NGOs, and the financial services community – to address the under-utilization of housing wealth in retirement.

The speaker list is excellent. The Urban Institute’s Laurie Goodman is the apparent headliner.

Here are my two cents (which has been devalued to less than a cent).

The American population is aging and many are entering retirement. But are they prepared?

First, The Federal government and its stakeholders have already tried to get more households to be stakeholders (that is, homeowners). And this happened.

Yes, the great leap forward in home ownership ultimately failed after almost reaching 70% before subsiding back to around 64%. That is, trying to get marginal households to switch from renting to owning. (By lowering credit standards and down payment requirements).


Mortgage purchase applications, after hitting its last surge in 2007, subsided as lenders tightened credit requirements (partially by themselves, partly because of increased regulation [Consumer Financial Protection Bureau’s Qualified Mortgage (QM) and other rules]). In any case, fewer mortgages are getting into the hands of households that are currently renting despite the affordability of home purchases being lower (in terms of mortgage rates) than before the financial crisis).


Laurie Goodman is likely to advocate relaxing credit standards ….  again. But deregulation has to happen as well. But slow wage growth compared to more price growth is also hampering households getting into homeownership.


Well, rising mortgage rates as The Fed withdraws it stimulus isn’t going to help renters shift into homeownership.

I worked on a product at Lehman Brothers and then Bank of Scotland in the 1990s called the Shared Appreciation Mortgage (SAM), but with a twist. The loans allowed usually elderly homeowners to release a cash sum up to 25 per cent of the value of their home, often interest-free. When the property was sold, the loan would have to be repaid in full plus up to  75 per cent of any increase in value of the property. Here is link to a paper I wrote on UK SAMs.

Yes, Equity Extraction SAMs are a variant of Reverse Annuity Mortgages. While demonized in the UK because home prices rose far faster than anticipated, the media forgets that the homeowner still gets  25% of the property price appreciation on property sale (or death). Here is a paper I wrote in 1986 on Shared Appreciation Mortgages.

Chris Mayer from Columbia is likely going to talk about his company’s twist on the SAM product. I would be very interested in hearing what Mayer’s version is of the SAM product. [My original pricing spreadsheet for the Bank of Scotland SAM deal is available to my students at George Mason University].

The UK SAM deals are still out there and retain AA rating from S&P.


Here is a prospectus supplement for one of the Bank of Scotland Shared Appreciation deal. bosprosup

Conclusion? Maybe Laurie Goodman is correct and the credit envelope could be expanded (but not to 2005 levels). But we need to deregulate the mortgage industry. Products like the UK SAM make perfect sense, but I am afraid that the CFPB will rule against it.








Another $4 Billion Of Treasury Notes on Fed’s Balance Sheet Mature (Another Note Bites The Dust!)

According to The Fed’s The System Open Market Account (SOMA), a little over $4 billion of Treasury Notes has bit the dust reducing the Fed SOMA T-Notes and T-Bond balance to  $2,286,512,380.60 (or $2.286 trillion).


Another note bites the dust!

I think I am going to laze on this coming Sunday afternoon..

Treasury Seven-Year Sale Caps $258 Billion Week of Higher Yields (Git-R-Done!)

Both Larry the Cable Guy and Treasury Secretary Steve Mnuchin would be proud of this week’s Treasury auctions. The “Git-R-Done! Auctions.
(Bloomberg) — The U.S. Treasury’s $29 billion auction of seven-year notes drew the highest yield for securities at that tenor since 2011, capping a $258 billion flood of debt sales over three days.
As with the week’s other note offerings, there was a dip in the amount of bids relative to the amount sold, signaling weaker demand. With the Treasury ramping up borrowing as part of its plan to finance widening budget deficits, the auction was $1 billion larger than it was last month and the bid-to-cover ratio slid to 2.49 from 2.73 at the prior sale.

Indirect bidders, a class of investors that includes pensions and mutual funds, purchased 62.2 percent, down from 78.1 percent last month. Direct bidders, on the the other hand, bought 15.6 percent, the largest share since September. The securities were priced to yield 2.839 percent, around 0.7 basis point above the level they were trading at before the auction in the when-issued market. The yield was the highest since at auction since March 2011.

All told, the auctions show that there’s demand out there for Treasuries, even as supply ramps up, but investors may require higher yields to step in and buy.


Hunger Games (Maduro-Style)! Venezuela Devalues Bolivar More Than 80% in Currency Auction (UPDATE) As Oil Workers Starve and Production Falls

Venezuela must be taking the books/movies “The Hunger Games” literally.

(Bloomberg) — Venezuela’s bolivar plunged more than 80 percent as the central bank restarted currency auctions for the first time since August as part of its efforts to ease a severe shortage of dollars and clamp down on hyperinflation.

One dollar bought about 25,000 bolivars at the auction, compared with 3,345 bolivars at the last so-called Dicom sale about six months ago. The rate announced Monday is still much stronger than in the black market, where individuals and businesses without access to the official markets pay about 225,000 bolivars per dollar, according to

The devaluation — even if it falls short of the street rate — represents a last-ditch effort by President Nicolas Maduro to remedy the dire economic crisis plaguing this oil-rich nation amid a scarcity of foreign exchange. The weakened Dicom rate — now the only rate used for all official transactions — allows the government to further stretch the amount of dollars it doles out for imports and will make businesses’ purchases from overseas remarkably cheaper. It is also the rate used by foreign credit cards.

One dollar bought about 25,000 Bolivars at the auction?  Now one dollar equates to 28,964 Bolivars.



Now there are reports of Venezuelan oil workers literally fainting on the job, curtailing oil production. Things were a lot brighter back in 2014 when Venezuelan oil fetched over $100. Now it fetches $56 when it can be pumped.


Yes, Venezuela’s oil production is crashing.


The Hunger Games, Maduro-style!



Will US Treasury 10Y Yield Stop At 3%? (4 Fed Rate Hikes Unlikely) – Reverse Limbo Rock

To paraphrase Chubby Checker, “How High Will It Go?” That is, how high will the 10 year Treasury yield rise and how high will 30 year mortgage rates rise as well?

(Bloomberg) — One of the hottest debates in financial markets right now is how high the yield on 10-year Treasuries can go, with the median forecast of analysts compiled by Bloomberg seeing 3 percent by year’s end. If history is any guide, it probably won’t rise much further than that. In the past five major Fed tightening cycles, longer-term Treasuries outperformed short-dated debt, flattening the yield curve, as investors likely envisaged higher rates would stem inflation and keep economic growth from overheating. 


I have included the NBER’s Recession Indicator to show that the 10Y-2Y curve flattens as we approach a recession. But are we approaching a recession OR improving?


The US Treasury 10Y Term Premium remains negative (although increasing).


And with 30Y fixed-rate mortgages at 150-180 basis points over the 10Y Treasury Note yield (depending on which benchmark rate you use), this implies that mortgage rates will peak at 4.50-4.80% if the 10Y Treasury yield peaks at 3%.


Yesterday, James Bullard from the St Louis Fed said that everything will have to be perfect to enable four Fed rate hikes this year. With The Fed Funds Target Rate (Upper Bound) currently at 1.5%, 4 rate hikes at 25 basis points each would put the target rate at 2.5%.

Well, the implied probability from Fed Funds Futures indicate that four rate hikes are a low probability. Rate hikes to 2% are more likely.


The Fed has already done the Limbo Rock with rates and are finding people getting severe backaches from raising the bar.


US Treasury 5Y Auction Nets 2.66%, Highest Since December 2009 (TYVIX Vol Remains Subdued)

(Bloomberg) — $35b auction was awarded at 2.658%, matching the When Issued (WI) yield at bidding deadline, highest 5Y auction stop since 2.665% in December 2009; compares with 2.434% in January.
  • 29.3% primary dealer award was higher than previous as indirect award declined to 58.0%, lowest since April, offsetting increase in direct award to 12.7%
  • 2.44 bid-to-cover compares with 2.48 average for previous six
  • Auction was expected to draw support from outright yield and short-covering, offset by increased size and FOMC minutes risk


Yes, it was the highest auction stop since December 2009, just after the end of The Great Recession.


At least the TYVIX  (CBOE CBOT 10 year U.S. Treasury Note Volatility Index) is lower now than in 2009.