Sunday, December 11, 2005

Bonds Say Housing Bubble is Bursting

It doesn't seem like the yield on treasury bonds has to go up in order for mortgage rates to go up. The spread between the risk free rate and mortage rates is widening because the probability of default is increasing for mortgage loans.

[In the U.S. bond market, the housing bubble has burst.

Bonds backed by home loans to the riskiest borrowers, the fastest growing part of the $7.6 trillion mortgage market, have lost about 2.5 percent since September on concern an 18-month rise in interest rates may force more than 150,000 consumers to default.

"We've been hearing about risks of a house-price bubble, easy credit and loans to borrowers that really don't qualify, and now in the last couple of months we're starting to see things turn for the worse," said Joseph Auth, a bond fund manager who helps oversee $135 billion at Standish Mellon Asset Management in Boston. "We don't know if it's going to be a hard or soft landing."]



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