My Financial Healthcheck

The Federal Reserve is losing their battle to keep the long tern bond yields low.  The yields on the all the bonds spiked this week, especially the 10 Year Bond which impacts long term mortgage rates.  The math is simple, the Treasury bond buyback program which had been working pretty well the past few months can’t keep up with the staggering amount of debt the government is creating. The Treasury announce that it would issue $100 billion more bonds this coming week.  It is now feared that the U. S. could lose it’s AAA credit rating, where in Britain their AAA rating is close to being lowered by Standard and Poor’s rating agency.  The lower the credit rating the more expensive it is to borrow money to keep the country’s  economy working.  If Washington continues to print more money to try and fund economy recovery efforts, the Treasury buyback program will not work.  Tax receipts from the 2008 tax period has fallen way short of expectations and some recent outlook reports have pointed to a slowing economy.  Mortgage interest rates which are tied to long term bond yields rose at the end of the week by .25% and now are firmly in the 5.125%-5.25% area for a conforming loan if someone has perfect credit scores and equity in their home.  I will repeat that if bond yields continue to rise and rates follow, the housing market which has shown some signs of recovery will collapse further.  The housing market’s recent improvement was due to the low mortgage rates and qualified people being able to refinance and first time home buyers taking advantage of these low rates and lower house values.  If mortgage rates rise, market values will continue to fall, refinances will stop and anyone looking to buy a home will sit on the sidelines waiting for values to fall further.