US Treasuries Cross Into Danger Zone!

• US Treasuries Cross Into Danger Zone! 
  by MIKE WHITNEY, http://www.counterpunch.org/ 
  While Housing Sales Slow
  10-year Treasuries veered into the danger zone on Friday as yields broke through the crucial 3 percent barrier signaling a slowdown in housing sales due to higher mortgage rates. Fixed rate mortgages are expected to edge higher even though the rate on the 30-year loan increased to 4.48 percent just days earlier. The Fed’s announcement to scale back on its $85 billion per month asset purchases has triggered a selloff in long-term Treasuries that will further constrain lending, shrink the pool of potential homebuyers, and turn a mild slowdown to a protracted slump.
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  Keep in mind, that the Fed is already buying nearly all of the newly issued mortgage-backed securities (MBS), but even that radical market intervention is having no noticeable impact on interest rates. Take a look at this from the Wall Street Journal:
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  “The Fed bought about 90% of new, eligible mortgage-bond issuance in November, up from roughly two-thirds of such bonds earlier this year…
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  The Fed’s reach has been enhanced by its practice of reinvesting the proceeds of its maturing mortgage bonds in its $1.48 trillion portfolio, adding another $15 billion to $20 billion in new monthly mortgage-bond purchases.
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  The Fed has increased its holdings by $553 billion over the past year. It is on pace to add another $220 billion in purchases in 2014, according to estimates from Credit Suisse.” (“The Fed’s Mortgage Role Expands“, Wall Street Journal)
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  There is no market for MBS except for the Fed.
  On top of that, the Fed is reinvesting the money it takes in on maturing MBS to buy more of this unsellable garbage which adds another $15 or $20 billion to the monthly total.
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  “15 billion here, $20 billion there. Pretty soon, you’re talking real money.”
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  And all of this is being piled on to the Fed’s bloated $4 trillion balance sheet. (which no one has any idea of what to do with.) The purpose of the policy is push down long-term interest rates, which it doesn’t do. In fact, as we pointed out earlier, rates are rising while conditions in the housing market are going from bad to worse. For example, existing home sales tanked for the third month in a row in November to a seasonally adjusted annual rate of 4.9 million. November’s sales pace was the slowest in more than a year, which means that higher rates and rising prices are scaring off potential buyers. There are also signs that institutional investors, which represented 50% or more of previous sales, are cutting back on their purchases due to the deteriorating rate environment. Take a look at this brief summary by housing analyst Mark Hanson:
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  read more!

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