In Flows, Yield, MBS, Bonds & the Dollar
There is nothing "odd" about the investment inflows into the US. But there is a strange enigma regarding the bond market and the dollar.
We have the strongest economy (highest reputable GDP at 3.5% and headed for 4.5%;Chinese numbers are very suspect); largest economy (+$15 Trillion); lowest GDP to budget deficit 3.5% (amongst 1st world countries;Eurozone will be +4%; Japan +5%), and the lowest unemployment rate 4.7% (outside of Japan).
Why own a Jap bond paying 1.5% or German bund paying 3.2% when a US treasury pays 4.2%???
Furthermore, why not own MBS (mortgaged backed securities)@ 5.5% guaranteed by FNMA or FHLMC??
And if you like risk, try subprime, no guarantee like NFI at 15%.
This goes a long way towards explaining why the U.S. bond market is having a party and interest rates are artificially low, but it doesn't explain why our currency has been devalued by 45% over the last 5 years.
U.S. pension funds, hedge funds and insurance companies have been piling into the bond market for some time.
Foreign holdings of US MBS rose 26% last year, making them the fastest-growing source of demand.
Foreigners held $280 billion of U.S. mortgage securities at the end of 2004, or 6% of the total outstanding.
Asian investors now account for roughly 10% to 20% of mortgage securities sold by IndyMac.
One explanation is that the bond market thinks interest rates are going to be even lower in the future, so they are locking in today's "higher" rates.
We have the strongest economy (highest reputable GDP at 3.5% and headed for 4.5%;Chinese numbers are very suspect); largest economy (+$15 Trillion); lowest GDP to budget deficit 3.5% (amongst 1st world countries;Eurozone will be +4%; Japan +5%), and the lowest unemployment rate 4.7% (outside of Japan).
Why own a Jap bond paying 1.5% or German bund paying 3.2% when a US treasury pays 4.2%???
Furthermore, why not own MBS (mortgaged backed securities)@ 5.5% guaranteed by FNMA or FHLMC??
And if you like risk, try subprime, no guarantee like NFI at 15%.
This goes a long way towards explaining why the U.S. bond market is having a party and interest rates are artificially low, but it doesn't explain why our currency has been devalued by 45% over the last 5 years.
U.S. pension funds, hedge funds and insurance companies have been piling into the bond market for some time.
Foreign holdings of US MBS rose 26% last year, making them the fastest-growing source of demand.
Foreigners held $280 billion of U.S. mortgage securities at the end of 2004, or 6% of the total outstanding.
Asian investors now account for roughly 10% to 20% of mortgage securities sold by IndyMac.
One explanation is that the bond market thinks interest rates are going to be even lower in the future, so they are locking in today's "higher" rates.
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