January 03, 2013 | By Scott Minerd
“As the U.S. economy continues to expand in 2013, long-term interest rates should continue to rise from their present levels. There appears to be a cap, however, on how much rates will be able to rise in the near-term. Given the adverse effect of a rising interest rate environment on the housing market, the Federal Reserve will almost certainly seek to keep long-term rates at a modest level for the foreseeable future. As a result, it would be difficult to conceive of the 10-year note rising above 2.25% within the next few years. Although an increase to 2.25% may not seem significant, that is more than 20% higher than what the 10-year note is currently yielding. Concerning the effect of rising rates on economic activity, credit spreads are likely to continue to tighten despite any rises in rates, meaning the impact of rates backing up will be fairly muted.”
Mortgage applications have historically been highly sensitive to changes in interest rates. The chart below highlights the relationship between changes in U.S. 10-year Treasury yields and home mortgage applications. Typically, periods of rising interest rates hamper mortgage applications, and consequently reduce the volume of home sales. Given this relationship and the Fed’s emphasis on supporting the U.S. housing sector, it appears unlikely the Fed will allow interest rates to rise materially in the near-term.
Source: Mortgage Bankers Association, Bloomberg, Guggenheim Investments. Data as of 4Q2012.
This article is distributed for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. This article contains opinions of the author but not necessarily those of Guggenheim Partners or its subsidiaries. The author’s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC. ©2015, Guggenheim Partners. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.
The outlook for credit amid rising inflation, monetary tightening, and war in Europe.
The risks of tightening into a downturn.
Clues from history on how to successfully end the current surge in prices.
VIDEOS & PODCASTS
Maria Giraldo, CFA, Managing Director, Investment Research, and Evan Serdensky, Director, Portfolio Management, provide our macro and markets outlook.
U.S. Economist Matt Bush analyzes the latest Fed announcement and labor and inflation data, Investment Strategist Maria Giraldo discusses credit risk while the Fed tightens, and Managing Director Chris Keywork updates on the bank loan market.
You are now leaving this website.Guggenheim assumes no responsibility of the content or its accuracy.
Your browser does not support iframes.
2022 Guggenheim Partners, LLC. All rights reserved. Guggenheim, Guggenheim Partners and
Innovative Solutions. Enduring Values. are registered trademarks of Guggenheim Capital, LLC.
how your browser accepts cookies; please see your browser help documentation for more