How the Chinese Will Effect the Value of Shore Houses.
This article gives a pretty decent explanation as to why mortgage rates will go higher here if the Chinese decide to let their currency float. Since the Chinese fear a protectionist US stance more than letting their currency appreciate, it seems pretty much inevitable that Chinese purchases of US treasuries will end soon, and higher interest rates would soon follow, dampening the affordability of houses in Holmdel.
[Right now China is one of the biggest buyers of U.S. government bonds, helping keep U.S. interest rates low. But if the yuan rose, the Chinese would probably cut back on their purchases, driving yields on Treasuries and mortgage-backed securities higher.
Ashraf Laidi, chief currency analyst at MG Financial Group, cited estimates that yields on the benchmark 10-year Treasury note are up to 70 basis points below where they would be without purchases by China and other Asian buyers. There are 100 basis points in 1 percent.
If China were to suddenly to drop its yuan-dollar peg, that means long-term bond rates could rise as much as a full percentage point, Laidi estimated.
Just the possibility of a free-floating yuan could drive up long-term rates, said Sung Won Sohn, CEO of Los Angeles-based Korean bank Hanmi Financial. "They don't have to do anything," he said. "If they just say they are going to buy fewer U.S. Treasuries, they can hurt us badly."
Even advocates of a free-floating yuan agree it will mean higher rates in the United States.
"Mortgage rates are going to go up, the long bond rate is going to go up," said Maryland's Morici, who has long been calling for China to let the yuan rise. "The only question is what is the precipitating event."
Meanwhile, a rising yuan would let China, already a big oil importer, buy even more oil for the same number of yuan, since oil is priced in dollars worldwide -- a move that would put upward pressure on oil prices.
"It is a country interested in growing rapidly, and one of the big bottlenecks in its growth has been energy," said oil analyst Peter Beutel, president of Cameron Hanover. "If it was suddenly trying to buy 1.5 million barrels today, it'd sop up most of the surplus right now."]
[Right now China is one of the biggest buyers of U.S. government bonds, helping keep U.S. interest rates low. But if the yuan rose, the Chinese would probably cut back on their purchases, driving yields on Treasuries and mortgage-backed securities higher.
Ashraf Laidi, chief currency analyst at MG Financial Group, cited estimates that yields on the benchmark 10-year Treasury note are up to 70 basis points below where they would be without purchases by China and other Asian buyers. There are 100 basis points in 1 percent.
If China were to suddenly to drop its yuan-dollar peg, that means long-term bond rates could rise as much as a full percentage point, Laidi estimated.
Just the possibility of a free-floating yuan could drive up long-term rates, said Sung Won Sohn, CEO of Los Angeles-based Korean bank Hanmi Financial. "They don't have to do anything," he said. "If they just say they are going to buy fewer U.S. Treasuries, they can hurt us badly."
Even advocates of a free-floating yuan agree it will mean higher rates in the United States.
"Mortgage rates are going to go up, the long bond rate is going to go up," said Maryland's Morici, who has long been calling for China to let the yuan rise. "The only question is what is the precipitating event."
Meanwhile, a rising yuan would let China, already a big oil importer, buy even more oil for the same number of yuan, since oil is priced in dollars worldwide -- a move that would put upward pressure on oil prices.
"It is a country interested in growing rapidly, and one of the big bottlenecks in its growth has been energy," said oil analyst Peter Beutel, president of Cameron Hanover. "If it was suddenly trying to buy 1.5 million barrels today, it'd sop up most of the surplus right now."]
posted by Little_Silvered at 9:08 PM
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