Mortgage Rate Jump Could Choke Off Housing-Led Recovery

[bobbyw24]

By: Dan Weil

As the 2010 approaches, a mix of housing market factors are falling into place which could lead to a very nasty start to the New Year for the U.S. economy.

If predictions of soaring fixed mortgage rates come true and damper any nascent housing recovery, the United States could experience the double-dip recession many experts have warned is possible.

Morgan Stanley now predicts 10-year Treasury bond yields will jump more than 40 percent next year, while 30-year fixed mortgages may surge more than 50 percent.

The exploding budget deficit will do the damage, David Greenlaw, Morgan Stanley’s chief fixed income economist, told Bloomberg News.

“When you take these kinds of aggressive policy actions to prevent a depression, you have to clean up after yourself,” he said. “Market signals will ultimately spur some policy action, but I’m not naive enough to think it will be a very pleasant environment.”

The firm forecasts the 30-year fixed mortgage rate will hit 7.5 to 8 percent, the highest level in a decade and up from about 5.3 percent now. It also predicts the 10-year Treasury yield will reach 5.5 percent next year from about 3.85 percent now.

The budget deficit ballooned to $1.42 trillion in fiscal 2009 (ending Sept. 30).

Morgan Stanley sees the gap remaining above $1 trillion as the Obama administration and Congress attempt to revive the economy with spending.

http://moneynews.com/Headline/Mortga...2/28/id/344816

[bobbyw24]

By Oliver Biggadike and Daniel Kruger

Dec. 28 (Bloomberg) -- If Morgan Stanley is right, the best sale of U.S. Treasuries for 2010 may be the short sale.

Yields on benchmark 10-year notes will climb about 40 percent to 5.5 percent, the biggest annual increase since 1999, according to David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. The surge will push interest rates on 30-year fixed mortgages to 7.5 percent to 8 percent, almost the highest in a decade, Greenlaw said.

Investors are demanding higher returns on government debt, boosting rates this month by the most since January, on concern President Barack Obama’s attempt to revive economic growth with record spending will keep the deficit at $1 trillion. Rising borrowing costs risk jeopardizing a recovery from a plunge in the residential mortgage market that led to the worst global recession in six decades.

“When you take these kinds of aggressive policy actions to prevent a depression, you have to clean up after yourself,” Greenlaw said in a telephone interview. “Market signals will ultimately spur some policy action but I’m not naive enough to think it will be a very pleasant environment.”

Yields on the 3.375 percent notes maturing in November 2019 climbed 4 basis points to 3.84 percent at 11 a.m. in London today, according to BGCantor Market Data. The price fell 10/32 to 96 5/32. They have risen 65 basis points this month, the most since April 2004, as government efforts to unfreeze global credit markets lessened the appeal of the securities as a haven.

Treasury Futures

http://www.bloomberg.com/apps/news?p...yRLF4adQ&pos=2

[cbc58]

i don't beleive it... not with all the arms in the pipeline.

what will happen to the price of gold if this happens?