Mortgage Market Summary as of April 23, 2018 - A Short Essay from Steve Sjuggerud, Author of True Wealth Newsletter

A little different twist this week.  Here is a short essay from Steve Sjuggerud, author of True Wealth newsletter that has proven his predictions have been pretty much right on…

THE MOST IMPORTANT NUMBER IN FINANCE IS MOVING HIGHER AGAIN...

At the end of January, we noted that the yield on 10-year U.S. Treasury notes – which influences borrowing costs, including mortgages, across the entire economy – had just broken out to a four-year high of 2.75%.

Friday, it did so again. As you can see in the following chart, 10-year yields just hit a fresh four-year high of 2.95%...

10 Year Treasury.png

Benchmark interest rates have now more than doubled since hitting an all-time low of 1.34% in July 2016. And they're quickly closing in on the 3% level.

Two of the world's best-known bond investors are watching this level closely.

Both "Bond King" Bill Gross, who co-founded investment management firm PIMCO, and "Bond God" Jeffrey Gundlach, founder of DoubleLine Capital, believe a breakout above this level will officially mark the end of the multidecade bond bull market.

BUT BEFORE YOU THINK ABOUT SHORTING THE BOND MARKET TODAY, YOU MUST KNOW ONE THING...

Many other folks have exactly the same idea.

In fact, this trade is so "crowded" right now, our colleague Steve Sjuggerud recently took the other side of the bet. As he explained earlier this month...

In my True Wealth newsletter, we recently made a big bet that interest rates on long-term bonds will go DOWN this year – not up...

Investors are almost unanimously betting against Treasury bonds. They are nearly unanimously betting on higher interest rates...

If you are betting on higher interest rates today, you need to realize that you are part of a crowded trade. And when a trade gets this crowded, the consensus is usually wrong.

TO BE CLEAR, THIS IS ONLY A SHORT-TERM TRADE...

Over the long term, Steve agrees with Gross and Gundlach that rates are likely headed much higher...

"But what about all the government spending, Steve?" It's a fair question. The U.S. government is $20 trillion in debt. If it can't pay it back, investors would lose confidence in government bonds, sending interest rates dramatically higher. The only question is, when will this happen?

Looking years ahead, I get it – it's a scary picture. The U.S. government is heading ultimately toward a debt crisis, with dramatically higher interest rates.

But that scenario is likely years away. For the next few months, my money is on lower long-term interest rates.

If Steve is somewhat correct we may still have some time to take advantage of rates before the higher trend continues.

Courtesy of Rick Lombardo 310.435.7439, Rick.Lombardo@grarate.com, VP of Mortgage Lending at Guaranteed Rate.

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