June 18, 2013 | By Scott Minerd
There is a greater-than-50 percent chance that the Federal Reserve will maintain the size and projected tenor of quantitative easing (QE) through the remainder of 2013. Policymakers have also indicated that the asset purchase program could be expanded if warranted by less-than-satisfactory economic performance.
Interest rates rose 59 basis points between May 1 and June 12 – equal to more than one third of the 10-year note’s yield at the start of that period. Mortgage applications fell sharply over the past month, in response, and a contraction in housing activity is likely if interest rates continue to rise. The Federal Reserve will do what is necessary to protect the contribution to GDP that is coming from new construction and the wealth effect from home price appreciation. A reduction in economic output due to a flattening in the vitally important housing sector will likely lead to lower interest rates. That could cause the signals coming out of the Fed to shift away from tapering, and possibly back toward increasing or extending QE.
The housing market recovery continues to provide substantial support to U.S. economic growth. Housing-related activities, defined as private residential investment, personal expenditures on household durable goods and utilities, and the wealth-effect on consumption from home price appreciation, have positively contributed to real GDP growth for five consecutive quarters. Housing-related activities contributed more than half of the real GDP growth in the first quarter of 2013.
Source: Haver Analytics, Guggenheim Investments’ estimates. Data as of 1Q2013. *Note: For simplicity, we don’t consider the impact of the housing boom on job creation, which could potentially add additional growth to the housing-related activities.
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. ©2014, 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.
High-yield corporate bond spreads and bank loan discount margins typically widen when the Fed is lowering interest rates.
The Federal Reserve’s policy pivot has supported a rally in most credit sectors, but investors should worry about late cycle excesses.
Beijing is preparing for a protracted standoff as the U.S.-China trade war ramps up.
Portfolio Manager Adam Bloch and Macroeconomic and Investment Research Group Director Matt Bush share insights from the first quarter 2019 Fixed-Income Outlook.
Anne Walsh, Chief Investment Officer for Fixed Income, shares insights on the fixed-income market and explains the Guggenheim approach to solving the Core Conundrum.
You are now leaving this website.Guggenheim assumes no responsibility of the content or its accuracy.
Your browser does not support iframes.
2019 Guggenheim Partners, LLC. All rights reserved. Guggenheim, Guggenheim Partners and Innovative Solutions. Enduring Values. are registered trademarks of Guggenheim Capital, LLC.