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Monday, October 4, 2010

The bond bubble and mortgage rates

Why are yields on bond important to housing?  As interest rates in the bond market increase usually so do mortgage rates.  This increase the financing costs and put pressure on housing prices.  Right now interest rates are low, but could increase if investor start to sell their bonds.

If anybody is to blame for a bond bubble, it isn't Joe Schmo; it's Uncle Sam, with some help from overseas.
"The Fed has effectively been taxing money-market funds [by cutting short-term interest rates] to recapitalize the financial system and to make things easier on borrowers," says Dan Dektar, chief investment officer at Smith Breeden Associates
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