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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: ChanceIs who wrote (67663)12/1/2006 6:32:14 AM
From: Dan3Read Replies (1) of 306849
 
Re: Why is the 10 year rising when the dollar is tanking.


Well, if you're still willing to invest your Euros, Yuan, or whatever in dollar bonds, you will now get X% more dollars of bonds for each of your Euros.

China recently said it was going to be moving away from investing so many of its dollars in US bonds - clearly that hasn't happened, yet.

Another contributing reason is that the supply is down so the price is up. A major source of long term bond supply has been 30 year mortgages. As real estate sales tank, fewer new 30 year fannie mae bonds are sent to the markets, reducing the supply of long term bonds causing the price of the bonds to rise (and long term interst rates to drop).

A significantly larger fraction of the US's wealth has been diverted to the top couple of percent of the population during the past 6 years. This money really cannot be spent on consumption (if you "earn" $100 million, you can't really spend it on consumption). Available income of the middle classes has actually dropped after payroll taxes and enery costs are considered - look at what it's done to WalMart sales. Real demand has been able to rise very little, so there's no opportunity for investment in real goods like factories. With real estate tanking there's no where else for the cash to go except to bid up long term bonds, causing rates to fall.
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