#bond market

[mortgages-by-mixon-nmls-2450250]

How Federal Reserve Rate Cuts Affect Mortgage Interest Rates

The Federal Reserve, often referred to as the Fed, plays a crucial role in shaping the economic environment of the United States, particularly through its monetary policy. One of the Fed's primary tools to influence the economy is adjusting the federal funds rate, the interest rate at which banks lend to each other overnight. When the Federal Reserve cuts interest rates, it can have a significant impact on various aspects of the economy, including mortgage interest rates. While the relationship between the two is not always direct, understanding how rate cuts generally influence mortgage rates is important for homebuyers, homeowners looking to refinance, and real estate investors.

The Federal Reserve’s Rate Cuts and Their Immediate Impact

When the Fed cuts interest rates, it lowers the cost of borrowing money for banks and financial institutions. This is done to stimulate the economy by encouraging spending and investment. For example, when borrowing becomes cheaper, consumers are more likely to take out loans for homes, cars, and businesses. The ultimate goal is to lower the unemployment rate, boost spending, and foster overall economic growth.

However, the direct link between the Federal Reserve’s actions and mortgage rates is somewhat indirect. The federal funds rate primarily affects short-term borrowing rates, such as credit card interest rates and rates on short-term loans, rather than long-term fixed mortgage rates. Mortgage rates are typically more influenced by long-term bond yields, particularly the 10-year Treasury note, which reflects investor expectations about future economic conditions, inflation, and the Fed’s monetary policy stance.

The Role of Treasury Yields in Mortgage Rates

Mortgage interest rates are more closely tied to the bond market, specifically the yields on government bonds. While the Federal Reserve’s rate cuts directly influence short-term borrowing, they can indirectly influence long-term rates as well. When the Fed cuts rates, it can make bonds that offer higher returns than current rates more attractive to investors. This increase in demand for bonds typically leads to a drop in bond yields.

As bond yields decrease, mortgage lenders can offer lower interest rates on mortgages. This is because lenders often use the yield on Treasury bonds as a benchmark for setting their rates. So, when yields drop, lenders pass on the savings to consumers in the form of lower mortgage rates. The reverse is also true—when the Fed raises rates, Treasury yields often rise, which can cause mortgage rates to increase as well.

The Influence of Inflation Expectations

One of the primary reasons the Fed cuts interest rates is to combat economic slowdowns or recessions. By lowering borrowing costs, the Fed aims to stimulate spending and investment, which in turn boosts economic activity. However, investors and lenders are also concerned with inflation. If investors believe that rate cuts will lead to higher inflation down the road, they may demand higher returns on long-term investments to compensate for the potential loss in purchasing power. In this case, mortgage rates might not fall as much or could even rise despite Fed rate cuts, especially if inflation expectations increase.

Conversely, if the rate cuts are seen as a response to a slowdown in inflation or a stagnant economy, mortgage rates are more likely to decrease. This is because the expectation is that low rates will keep inflation under control while encouraging economic activity, leading to a favorable environment for lower borrowing costs in the housing market.

Refinancing and Homebuying Benefits

For consumers, the most obvious effect of a Fed rate cut is the potential for lower mortgage rates, which can benefit both homebuyers and homeowners looking to refinance. Lower mortgage rates reduce monthly payments on new loans, making homeownership more affordable. For existing homeowners, refinancing can result in significant savings by locking in a lower interest rate, reducing the overall cost of a loan over time.

However, it is important to note that mortgage rates do not always follow the Fed's actions in perfect synchronicity. There may be other market forces at play that influence rates, including global economic conditions, investor sentiment, and domestic inflation trends. For instance, during times of economic uncertainty or market volatility, mortgage rates may remain higher even in the face of Fed rate cuts, as investors may seek safety in long-term bonds, driving up yields.

Conclusion

While the Federal Reserve’s rate cuts can influence mortgage rates, the relationship is complex and depends on various factors, including investor behavior and inflation expectations. Mortgage rates typically decline when the Fed lowers rates, but the full extent of the impact will depend on broader economic conditions. For homebuyers and homeowners, the key takeaway is that while Fed rate cuts often signal favorable conditions for securing lower mortgage rates, timing, market conditions, and individual financial circumstances should always be considered when making a decision.

[ariadneslament]

Bond Vigilante Shit

I have been reading about the "bond vigilantes" these past two days, and this is the song I've been playing as background music.

She don't start it, but she can tell you how it ends Don't get sad, get even.

[altifi1]

This is your sign to start investing.

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[hello-bechnaseekhocom-fan]

EM Bond Index: Potential Gains from Bloomberg's Addition Of India

[siliconpalms]

The Bond Market is Reflecting Reality: deVere CEO

The selling pressure in bonds highlights how the bond market is ‘reflecting the reality’, says the CEO of deVere, one of the world’s largest independent financial advisory and asset management organizations. The analysis from deVere Group’s Nigel Green come as the surge in the 10-year yield by approximately 27 basis points over the course of Friday and Monday has sent ripples through the…

[vidhansundriyal]

Invest in High-Return Bonds and Debt Securities in India | Altifi.ai

With AltiFi, you can invest in bonds and debt securities from leading institutions, including financial institutions, large and emerging mid sized corporates, start ups, and unicorns Our products are backed by high standards of corporate governance, and we offer a variety of investment options to meet your individual needs

[paulthepoke]

What Is About To Break? What Scared the Fed? Michael Douville

What is about to break? Something scared the Fed. The Pivot is coming from the Federal Reserve.

Proverbs 27:12 The prudent sees danger and hides himself, but the simple go on and suffer for it. Proverbs 4:13 Hold on to instruction; do not let go. Guard it, for it is your life. What is about to break? Something scared the Fed. The Pivot is coming from the Federal Reserve. They only do this when something scares them. I am hearing things overseas. Europe is a basket case, Japan is in…

[rethinking-the-dollar]

The Global Economy Gasping For Its Last Breath | Top Stories of The Day! (The People's Talk Show) https://youtube.com/live/Tj43ljJzfOw

[therealtorasia]

Vietnam’s State Bank Takes Steps to Encourage Development of Corporate Bond Market

The State Bank of Vietnam has issued Circular No. 03/2023/TT-NHNN, which suspends the implementation of Clause 11 Article 4 of Circular No. 16/2021/TT-NHNN dated November 10, 2021, that regulates credit institutions and foreign bank branches buying and selling corporate bonds. During the suspension of the implementation of Clause 11 Article 4 of Circular No. 16, credit institutions and foreign…

[ruegarding]

like the whole point of the ball scene is to humanize cerberus and the underworld. percy literally says "i thought maybe annabeth and i had both had the right idea. even here in the underworld, everybody—even monsters—needed a little attention once in a while." and then almost immediately afterwards percy thinks "the dead aren't scary. they're just sad." the whole point is that the underworld, and hades by extension, isn't scary! that's why percy is so sure he can leave his mother w hades and come back, and that's why he mentions charon and cerberus ("it wouldn't hurt to play with cerberus once in a while. he likes red rubber balls" HELLO) bc he doesn't see hades as the scary, conniving god everyone else does.

[suntails]

🐙⚔️

[imaginariumwanderer]

I'm so conflicted

On one hand, they gave us two cool Dark Choco designs to work with. We also have several cute moment like illusion!Dark Choco missing his father, the flashback, the final scene etc and I love those very much!

On the other, what do you mean he doesn't even physically appear and only gets mentioned in a couple of lines???

I not mad, just sad. They shouldn't have shown him in the trailer if he's not going to play a (bigger) role in the episode. They should've left him out completely sans his Magic Candy, letting us guessing/ thinking whether he'll appears or not. That way the back to back Dark Choco inclusion near the end will be stronger, we can finish the EP off with a final image of Dark Choco looking at the kingdom from afar, hinting at the eventual father-son reunion...

Anyways, I'm gonna go write a fanfic where Dark Cacao and Dark Choco traveled through EP 4 together now

[mostlysignssomeportents]

Insurance companies are making climate risk worse

Tomorrow (November 29), I'm at NYC's Strand Books with my novel The Lost Cause, a solarpunk tale of hope and danger that Rebecca Solnit called "completely delightful."

Conservatives may deride the "reality-based community" as a drag on progress and commercial expansion, but even the most noxious pump-and-dump capitalism is supposed to remain tethered to reality by two unbreakable fetters: auditing and insurance:

https://en.wikipedia.org/wiki/Reality-based_community

No matter how much you value profit over ethics or human thriving, you still need honest books – even if you never show those books to the taxman or the marks. Even an outright scammer needs to know what's coming in and what's going out so they don't get caught in a liquidity trap (that is, "broke"), or overleveraged ("broke," again) exposed to market changes (you guessed it: "broke").

Unfortunately for capitalism, auditing is on its deathbed. The market is sewn up by the wildly corrupt and conflicted Big Four accounting firms that are the very definition of too big to fail/too big to jail. They keep cooking books on behalf of management to the detriment of investors. These double-entry fabrications conceal rot in giant, structurally important firms until they implode spectacularly and suddenly, leaving workers, suppliers, customers and investors in a state of utter higgeldy-piggeldy:

https://pluralistic.net/2022/11/29/great-andersens-ghost/#mene-mene-bezzle

In helping corporations defraud institutional investors, auditors are facilitating mass scale millionaire-on-billionaire violence, and while that may seem like the kind of fight where you're happy to see either party lose, there are inevitably a lot of noncombatants in the blast radius. Since the Enron collapse, the entire accounting sector has turned to quicksand, which is a big deal, given that it's what industrial capitalism's foundations are anchored to. There's a reason my last novel was a thriller about forensic accounting and Big Tech:

https://us.macmillan.com/books/9781250865847/red-team-blues

But accounting isn't the only bedrock that's been reduced to slurry here in capitalism's end-times. The insurance sector is meant to be an unshakably rational enterprise, imposing discipline on the rest of the economy. Sure, your company can do something stupid and reckless, but the insurance bill will be stonking, sufficient to consume the expected additional profits.

But the crash of 2008 made it clear that the largest insurance companies in the world were capable of the same wishful thinking, motivated reasoning, and short-termism that they were supposed to prevent in every other business. Without AIG – one of the largest insurers in the world – there would have been no Great Financial Crisis. The company knowingly underwrote hundreds of billions of dollars in junk bonds dressed up as AAA debt, and required a $180b bailout.

Still, many of us have nursed an ember of hope that the insurance sector would spur Big Finance and its pocket governments into taking the climate emergency seriously. When rising seas and wildfires and zoonotic plagues and famines and rolling refugee crises make cities, businesses, and homes uninsurable risks, then insurers will stop writing policies and the doom will become undeniable. Money talks, bullshit walks.

But while insurers have begun to withdraw from the most climate-endangered places (or crank up premiums), the net effect is to decrease climate resilience and increase risk, creating a "climate risk doom loop" that Advait Arun lays out brilliantly for Phenomenal World:

https://www.phenomenalworld.org/analysis/the-doom-loop/

Part of the problem is political: as people move into high-risk areas (flood-prone coastal cities, fire-threatened urban-wildlife interfaces), politicians are pulling out all the stops to keep insurers from disinvesting in these high-risk zones. They're loosening insurance regs, subsidizing policies, and imposing "disaster risk fees" on everyone in the region.

But the insurance companies themselves are simply not responding aggressively enough to the rising risk. Climate risk is correlated, after all: when everyone in a region is at flood risk, then everyone will be making a claim on the insurance company when the waters come. The insurance trick of spreading risk only works if the risks to everyone in that spread aren't correlated.

Perversely, insurance companies are heavily invested in fossil fuel companies, these being reliable money-spinners where an insurer can park and grow your premiums, on the assumption that most of the people in the risk pool won't file claims at the same time. But those same fossil-fuel assets produce the very correlated risk that could bring down the whole system.

The system is in trouble. US claims from "natural disasters" are topping $100b/year – up from $4.6b in 2000. Home insurance premiums are up (21%!), but it's not enough, especially in drowning Florida and Texas (which is also both roasting and freezing):

https://grist.org/economics/as-climate-risks-mount-the-insurance-safety-net-is-collapsing/

Insurers who put premiums up to cover this new risk run into a paradox: the higher premiums get, the more risk-tolerant customers get. When flood insurance is cheap, lots of homeowners will stump up for it and create a big, uncorrelated risk-pool. When premiums skyrocket, the only people who buy flood policies are homeowners who are dead certain their house is gonna get flooded out and soon. Now you have a risk pool consisting solely of highly correlated, high risk homes. The technical term for this in the insurance trade is: "bad."

But it gets worse: people who decide not to buy policies as prices go up may be doing their own "motivated reasoning" and "mispricing their risk." That is, they may decide, "If I can't afford to move, and I can't afford to sell my house because it's in a flood-zone, and I can't afford insurance, I guess that means I'm going to live here and be uninsured and hope for the best."

This is also bad. The amount of uninsured losses from US climate disaster "dwarfs" insured losses:

https://www.reuters.com/business/environment/hurricanes-floods-bring-120-billion-insurance-losses-2022-2023-01-09/

Here's the doom-loop in a nutshell:

As carbon emissions continue to accumulate, more people are put at risk of climate disaster, while the damages from those disasters intensifies. Vulnerability will drive disinvestment, which in turn exacerbates vulnerability.

Also: the browner and poorer you are, the worse you have it: you are impacted "first and worst":

https://www.climaterealityproject.org/frontline-fenceline-communities

As Arun writes, "Tinkering with insurance markets will not solve their real issues—we must patch the gaping holes in the financial system itself." We have to end the loop that sees the poorest places least insured, and the loss of insurance leading to abandonment by people with money and agency, which zeroes out the budget for climate remediation and resiliency where it is most needed.

The insurance sector is part of the finance industry, and it is disinvesting in climate-endagered places and instead doubling down on its bets on fossil fuels. We can't rely on the insurance sector to discipline other industries by generating "price signals" about the true underlying climate risk. And insurance doesn't just invest in fossil fuels – they're also a major buyer of municipal and state bonds, which means they're part of the "bond vigilante" investors whose decisions constrain the ability of cities to raise and spend money for climate remediation.

When American cities, territories and regions can't float bonds, they historically get taken over and handed to an unelected "control board" who represents distant creditors, not citizens. This is especially true when the people who live in those places are Black or brown – think Puerto Rico or Detroit or Flint. These control board administrators make creditors whole by tearing the people apart.

This is the real doom loop: insurers pull out of poor places threatened by climate disasters. They invest in the fossil fuels that worsen those disasters. They join with bond vigilantes to force disinvestment from infrastructure maintenance and resiliency in those places. Then, the next climate disaster creates more uninsured losses. Lather, rinse, repeat.

Finance and insurance are betting heavily on climate risk modeling – not to avert this crisis, but to ensure that their finances remain intact though it. What's more, it won't work. As climate effects get bigger, they get less predictable – and harder to avoid. The point of insurance is spreading risk, not reducing it. We shouldn't and can't rely on insurance creating price-signals to reduce our climate risk.

But the climate doom-loop can be put in reverse – not by market spending, but by public spending. As Arun writes, we need to create "a global investment architecture that is safe for spending":

https://tanjasail.wordpress.com/2023/10/06/a-world-safe-for-spending/

Public investment in emissions reduction and resiliency can offset climate risk, by reducing future global warming and by making places better prepared to endure the weather and other events that are locked in by past emissions. A just transition will "loosen liquidity constraints on investment in communities made vulnerable by the financial system."

Austerity is a bad investment strategy. Failure to maintain and improve infrastructure doesn't just shift costs into the future, it increases those costs far in excess of any rational discount based on the time value of money. Public institutions should discipline markets, not the other way around. Don't give Wall Street a veto over our climate spending. A National Investment Authority could subordinate markets to human thriving:

https://democracyjournal.org/arguments/industrial-policy-requires-public-not-just-private-equity/

Insurance need not be pitted against human survival. Saving the cities and regions whose bonds are held by insurance companies is good for those companies: "Breaking the climate risk doom loop is the best disaster insurance policy money can buy."

I found Arun's work to be especially bracing because of the book I'm touring now, The Lost Cause, a solarpunk novel set in a world in which vast public investment is being made to address the climate emergency that is everywhere and all at once:

https://us.macmillan.com/books/9781250865939/the-lost-cause

There is something profoundly hopeful about the belief that we can do something about these foreseeable disasters – rather than remaining frozen in place until the disaster is upon us and it's too late. As Rebecca Solnit says, inhabiting this place in your imagination is "Completely delightful. Neither utopian nor dystopian, it portrays life in SoCal in a future woven from our successes (Green New Deal!), failures (climate chaos anyway), and unresolved conflicts (old MAGA dudes). I loved it."

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2023/11/28/re-re-reinsurance/#useless-price-signals

[klanced]

I still have no idea how Veracxa actually played out in the show but I’m enamored by the idea that the team spends years fighting like the bitchiest most tenacious most androgynous lesbian ever. And then she becomes Lance’s sister-in-law.

[bitchesgetriches]

Hi! I fully do not understand investing, but I’m going to follow the directions you and others give about IRA investments. The one thing that I totally do not grasp is the allocating the funs into an index. Isnt there a scenerio where the index loses money and by retirement age you check it out and it went completely under or something?

Hey kiddo! And welcome to the wide world of investing. You're on the right track by starting an IRA for your retirement.

Yes, there are people who lose money by investing their retirement fund. This happens when they retire at the same time a recession or stock market crash happens. And it's fucking unlucky timing.

If you invest $100, and the market falls to the point that it's worth $80, you will lose money if you pull your money out when it's worth $80. But after the fall, when the market recovers so your original investment is worth $120, and THEN you pull your money out... you will have made money!

In other words, timing matters. We explain exactly how this works here:

Wait... Did I Just Lose All My Money Investing in the Stock Market?

Now to address the second part of your question. You can avoid the risk of losing money by regularly adjusting your allocation. When you're young and many years from retirement, you can allocate your portfolio aggressively into higher-risk investments. Who cares if you lose money in the short term? As we explain in the link above, you don't actually LOSE the money until you take the money out of the stock market.

But as you get older and nearer to retirement, you want to lock in your gains by moving your money from high-risk investments like stocks to safer investments like bonds. That way when you get within a few years of retirement, you can kind of "protect" your investments from being overly affected by market fluctuations.

In other words: allocation is not a one-time activity. We explain this more here:

Investing Deathmatch: Stocks vs. Bonds 

This was a big oversimplification, but we go into detail about all of this here:

Do NOT Make This Disastrous Beginner Mistake With Your Retirement Funds 

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